The saga of the fall of MF Global Holdings continues.
The prominent futures and commodities brokerage firm has been on an accelerating downward spiral since the beginning of the week, when Moody’s downgraded the company and weak quarterly earnings alerted the public to the firm’s risky trades and $6.3 billion European debt exposure.
Here’s a round-up of the latest:
The Wall Street Journal is reporting that sources say Goldman Sachs, State Street and Macquarie are potential bidders for parts or the whole company. After the news broke around 12:40 p.m., share prices of MF Global shot up to $1.41 per share.
Earlier today, CNBC reported that a sale of MF Global’s futures unit is in advanced talks, and a deal could be complete by as early as Monday, “if not sooner.” The company is talking to a “narrow field” of bidders, sources close to the situation told CNBC. It is likely that the company will wind down its brokerage operations after the futures unit is sold, according a KBW report released yesterday that Business Insider obtained. But a sale of the brokerage unit has also not been ruled out, CNBC reported.
Prices may have gone up on the WSJ scoop, but who will ultimately pick up the pieces of MF Global is still up in the air. Many news sources are speculating on potential bidders, and the list includes private equity firms, small brokerages looking to merge and large investment banks.
A source told the New York Post that MF Global CEO Jon Corzine reached out Barcalys for a possible deal, but it is unlikely that will come through. Corzine, who is a former Goldman Sachs head, wanted to make the company a “mini-Goldman Sachs” when he joined the firm in 2010, but that seems unlikely to happen as it looks like the company is breaking itself down for a sale.
MF Global has also completely tapped their credit lines from two of their lenders (though it isn’t known who the two banks are) to maintain liquidity, Bloomberg reported this morning. The firm told investors they had $1.3 billion of unused credit earlier this week.
It’s desperate times but if the firm can survive the week’s last day of trading and use the weekend to broker a deal by Monday, as CNBC is reporting, they might be able to end this nightmarish ride.
And it’s no longer a question that for MF Global, sooner is better. The company is bleeding customers – a Chicago-based trader told Reuters he opened three new accounts for former MF Global clients and a hedge fund said they have moved some of their assets from the firm. The Wall Street Journal also reported that some brokers using MF Global as a clearinghouse have made preparations to decrease their dependence on the company.
The portfolio of client relationships is one of MF Global’s most valuable assets – and further deterioration could affect the firms’ ability to negotiate the best possible deal for themselves.
But there’s also a potential silver lining. Several clearinghouses across the globe that MF Global use to clear their trades have come out and said the company is in good standing and meeting its financial obligations. They include CME Group and IntercontinentalExchange, Inc in the U.S., LCHClearnet in London and Singapore Exchange Ltd. A Chicago firm that uses MF Global as a clearinghouse also told the WSJ that they plan on sticking with company.
Here’s a breakdown of where stocks and ratings stand:
Stock: MF Global was trading at less than a dollar in pre-market hours. It closed at $1.43 per share yesterday, and opened at $1.02 per share this morning. Now, the stock is trading at around $1.29 per share.
Ratings: Both Fitch and Moody’s have cut MF Global’s rating to junk status. The company is on the watch list for further downgrades from Moody’s and Standard and Poor. Moody’s, which set the company’s tumble in motion with a downgrade to Baa3 (one notch about junk status), downgraded MF Global to junk (Ba2) yesterday.
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