JP Morgan has just been put in a tough spot by a new report from Reuters that it withheld the proceeds of asset sales by MF Global from the ailing firm in the days before its collapse.
According to sources with knowledge of the transactions, MF Global sold hundreds of millions of dollars of assets to Goldman Sachs in the days preceding its bankruptcy. MF Global used JP Morgan as its clearing bank for these sales.
However, MF Global did not receive payment from JP Morgan for these asset sales, according to sources, thwarting the attempt to bolster MF Global’s cash position during its tempestuous final days.
If JP Morgan held on to MF Global’s funds contrary to their obligation as a clearing bank, this is a very serious allegation.
JP Morgan was also a lender to MF Global. At the time it was selling assets to Goldman, MF Global was aggressively drawing down a $1.2 billion line of credit at JP Morgan.
Did JP Morgan withhold proceeds from the assets sales because of MF Global’s borrowing against its line of credit? Afterall, extending additional credit to a firm with a declining asset base is far from an ideal scenario and holding onto the proceeds of MF Global’s assets sales seems like an effective, if improper, way to counter this risk.
Through a spokeswoman, JP Morgan denied that it withheld the proceeds from the asset sales due to MF Global’s use of its line of credit but declined to comment on the details of the asset sale transactions.
It is unclear at this time what type of securities were included in the last ditch fire sale, which occurred on October 27, but the inability of MF Global to actually take delivery of the hundreds of millions it raised adds another twist in the plot of its missing funds.