ORIGINAL POST, SEE UPDATES BELOW: All eyes have been fixed on MF Global this weekend, as the faltering derivatives brokerage scrambles save itself with a possible sale of parts or the whole company following a week of tumbling share prices (to below $1 at one point on Friday) and two credit downgrades to junk.The company’s board of directors met yesterday and today to discuss the future of the firm run by former Goldman Sachs CEO Jon Corzine, several media outlets have confirmed. On Friday, CNBC reported sources said a deal was likely to be finalised by Monday – if not sooner. Urgency is clearly key here, and analysts have said it is most beneficial for the company to act as soon as possible before it lost too many customers – as the base of client relationships is one of MF Global’s most valuable assets.
So as the weekend winds down, here are some of the biggest questions still on everyone’s mind:
How will MF Global be sold?
Although there were early rumours that the firm planned on spinning off its futures brokerage unit (worth approximately 85% of the company’s tangible book value of $1.2 billion, according to a KBW analyst report BI obtained), but according to Reuters, a source has said all options are on the table – so a sale of the entire company is still possible.
If MF Global breaks off its futures unit to be sold, it is likely it would shut down what is left – a broker-dealer operation, the KBW report said. But CNBC reported Friday the company had not ruled out a sale of that unit either.
Another option that would be most profitable for shareholders is simply selling its portfolio of customer relationships and infrastructure, KBW analyst Niamh Alexander told Business Insider.
All in all, the question of how the company will be sold may trickle down to who the buyer will be.
Who’s going to buy?
The field of potential buyers narrowed to five parties, a source told Bloomberg Friday, but the list of names being thrown around as a possibility stretches much longer. They include large investment bank groups, private equity firms and smaller brokerages.
Ultimately, the buyer may determine how the company will be sold. A private equity firm will likely take the whole company private – some speculated that J.C. Flowers & Co., the company that helped Corzine to the top position at MF Global and owns a 6% stake could step up to make a deal. A smaller brokerage may also want the whole firm in order to merge operations to become a more influential player in the brokering industry, and Cyrus Sanati at Fortune mentions Interactive Brokers as a potential.
But larger banks may want differing parts of MF Global depending on where their strengths and weaknesses lie in commodities and derivatives operations. Goldman Sachs, Macquarie and State Street were possible acquirers first reported by the Wall Street Journal. Goldman Sachs was an early name mentioned by many analysts because of its past connections to Corzine and the amount of capital the bank held. Macquarie seems unlikely – as the bank already has a larger commodities business and a source told Bloomberg the company wasn’t planning on any deal-making this weekend. State Street would only want a small portion of the business that could benefit its buy-side asset management firm.
A Reuters article also reported sources saying Barclays, Citigroup, Deutsche Bank, Jefferies Group, JPMorgan and Wells Fargo had also been approached.
What are the larger implications of MF Global’s swift fall from grace?
Frankly, judging from what’s happened at this point – not much. Though the firm’s fall is a testament to the far-reaching effects of the Eurozone crisis contagion – much of the blowup over MF Global has been on the $6.3 billion in European debt they hold on their books – MF Global is a relatively small player within the behemoth of the financial industry. The company is a derivatives brokerage that trades and clears futures for clients, and although it is the biggest independent futures brokerage in the U.S. (the other larger ones are owned by banks), the futures exchange market is heavily regulated and contracts traded are standardized.
(The Street has a good piece that breaks down what MF Global does and how it is regulated through clearinghouses, removing risk from the company’s counterparties.)
And despite MF Global’s tumbling stock value this entire week, it’s had little effect on markets, as they rallied on positive news from Europe. As Charlie Gasparino points out, MF Global isn’t “systematically important.”
We hope, anyway. But John Carney at NetNet makes a good case for how MF Global could be just the tip of the iceberg.
UPDATE: Dealbook is reporting that the company is trying to sell itself tonight, and is in talks with Interactive Brokers as well as Jefferies, although regulatory issues may prove to be a snag.
UPDATE 2: WSJ reported that a likely scheme could be Interactive Brokers buying some of MF Global’s assets and the company filing for bankruptcy protection on its other parts. MF Global has hired restructuring lawyers. Clearinghouses are also preparing for the company’s potential bankruptcy, according to the WSJ.
UPDATE 3 5:53 AM ET: Still no deal yet for MF Global. According to the BBC’s Robert Peston, London Employees have been sent home. This is the end of the line.
UPDATE 7:08 AM ET: According to CNBC, shares of MF Global are now halted with news pending.
UPDATE 7:34 AM ET: CNBC reports that the New York Fed has suspended MF Global from doing business. Here’s the press release. This means that MF Global will no longer be to do trades with the U.S. government, such as buying and selling treasury securities. The firm was one of 22 “primary dealers” designated by the NY Fed.
UPDATE 9:35 AM ET: CME Group has suspending MF Global. The company had said just last Thursday that MF Global was in good standing and meeting financial obligations. In addition, Intercontinentalexchange no longer recognises MF Global as a guarantor for floor trading.
LAST UPDATE: The company has filed for chapter 11 bankruptcy. Definitely a wild turn-around amid all the speculation.