Photo: Business Insider
It’s been a whole four weeks since MF Global declared bankruptcy on October 31, and it seems that only the tip of a large iceberg of issues has unveiled itself.With increasingly bewildering news surrounding the whereabouts of the missing client money, occasionally drab details from bankruptcy court and paparazzi shots of Jon Corzine surfacing on the news everyday, it seems that problems ensnaring the brokerage firm are interminable.
To make it easier for readers, we’ve compiled all the important events you need to know to better understand the situation, from the initial Moody’s downgrade and European debt holdings that set off the alarm on MF Global to the House subcommittee hearing that’s just been announced.
As far back as June this year, regulators began asking MF Global to increase its capital due to the company's high exposure to European sovereign debt. MF Global raises more capital by September, but it obviously wasn't enough.
Source: Washington Post
Then, a Moody's downgrade and a quarterly earnings release provided a double-whammy to the company stock.
On Oct. 24, Moody's downgrades MF Global's credit rating to one-grade above junk status, setting off a slew of investor fears. Share prices for the firm start plunging, falling up to 40% per day.
The company decides to release earnings early on Oct. 25--revealing a $186 million net loss and $6.3 billion of European debt on their books. The European holdings only adds fuel to the fire of shareholder fears, and share prices for the firm continued nosediving, at one point trading below $1. A Fitch downgrade and another Moody's downgrade, both to junk, follows later that week.
By Oct. 28, everyone assumed MF Global would be bought out by a bigger company as its stock traded below $1 at times.
Speculation that MF Global will sell itself or parts of the company arise just a day following Moody's downgrade. By Friday (Oct. 24), it was assumed the company would definitely be sold over the weekend.
Goldman, Macquarie and State Street were initially rumoured to be the most likely acquirers, but later reports note a slew of other banks expressing interest in buying MF Global or having been approached by CEO Jon Corzine.
Over the weekend, meetings and talks at MF Global continued as many expected a deal by Monday. But...
MF Global's board of directors and executives continues to meet over the weekend of Oct. 25th in a desperate mad dash to save the company. Many expect a deal to be done by Monday--or rather, a deal had to be complete by Monday for the firm to survive.
At the end of the weekend, it is reported that Interactive Brokers is a handshake away from sealing a deal to buy MF Global.
Despite over 200 years of history (it used to be part of Man Group), everything comes to a shattering end for MF Global around 10 am Oct. 31. The company files for chapter 11 bankruptcy protection after deal talks with Interactive Brokers fell apart.
MF Global does not a leave a pretty legacy in its last hours. Before the bankruptcy was publicized, shares of MF Global are halted and MF Global traders are blocked from going onto the floors of the CME, NYMEX and the Intercontinental Exchange. The New York Fed also strips the firm of its primary dealer status earlier.
A trustee, James Giddens, is appointed by the court to oversee the bankruptcy process.
After the bankruptcy filing, it is reported that there is a shortfall in segregated client funds at MF Global.
In the afternoon of Oct. 31, reports surface that there is about a $1 billion shortfall in segregated client funds at MF Global. After the news is publicized, the MF Global trustee immediately freezes all client accounts and the money in them, putting clients from hedge funds to farmers in a debilitating limbo that continues today.
The amount of missing money is later calculated to be around $600 million. JP Morgan and Harris Bank are the two entities initially connected with the investigation to where the shortfall may have landed.
It is a cardinal rule of Wall Street that client money are to remain strictly segregated from company funds. If the one responsible for the shortfall is found, criminal charges are very likely.
Several federal agencies announce they are investigating MF Global following the bankruptcy and announcement of the $600 million in missing funds.
They include the Commodity Futures Trading Commission, the SEC and the FBI.
CME Group, which owns the CME and NYMEX, also announce their own independent investigation.
Jon Corzine resigns from his position as CEO and Chair of MF Global, and no one is named as a replacement, even in the interim. He does not take his severance, which was estimated to be about $12 million.
Corzine, who is most famous for being an ex-Goldman Sachs CEO and former democratic senator and governor of New Jersey, has been the face that many blamed for getting MF Global into this predicament. Corzine was the one who led MF Global's efforts in taking positions on European sovereign debt, which set off investor fears.
MF Global's collapse serves as a catalyst for another range of problems.
Clients had originally expected a smooth transition to a new broker after MF Global's bankruptcy, but the discovery of the missing $600 million causes all cash-only accounts to be frozen by the trustee. Client accounts which had open positions are transferred to new brokers, but with only 60% of the collateral to back them up, and customers receive margin calls.
And it seems that MF Global's collapse has drastically affected confidence in another investment bank, Jefferies.
And it's not just former clients...
MF Global's collapse due to loss of confidence over European sovereign debt also shocks the market and those in the financial industry. Investors immediately begin fleeing Jefferies, a mid-size investment bank that has a business model similar to MF Global and a sizable European debt holding-- causing Jefferies stock to tumble.
On Nov. 11, Giddens -- who is overseeing the liquidation of MF Global's brokerage unit in the US -- announces the termination of 1,066 jobs at MF Global, laying off nearly all employees. About 200 employees will be rehired to help wind down the business.
The job cuts do not go through quietly, within a day, former employees begin suing MF Global for possibly violating New York labour laws -- which require that all terminated workers be given 90 days prior notice.
Then, some good news is followed by bad news for former MF Global clients regarding their frozen accounts and the missing money.
Despite regulators, accountants and former employees working away to trace where the $600 million shortfall may have landed, there has still been very light shed on the funds whereabouts three weeks later.
At a Nov. 16 hearing, a bankruptcy judge approves an order to transfer about $520 million back to customers who had cash-only accounts at MF Global.
But on Nov. 22, things take a turn for the worse -- the trustee announces that the actual shortfall may be double -- to $1.2 billion.
Meanwhile, the Commodity Customers Coalition, a grassroots group representing thousands of MF Global customers, starts up to represent the interests of the clients.
But a day later, the MF Global trustee reports that he had received a $1.3 billion transfer from Harris Bank, adding another confounding variable...
The trustee Giddens announces a day later that he has received a transfer of $1.3 billion from Harris Bank -- a figure that is unrelated to the $1.2 billion in missing customer funds, the hunt down the trail of that money continues.
The $1.3 billion--which is in cash, securities and foreign currencies--will go directly to Giddens. The money represents a 'cushion' for the trustee's payouts to MF Global customers who have had their accounts frozen, and will hopefully go towards making the clients whole.
Due to the widespread effect of MF Global's bankruptcy in farm country, and many members of Congress began asking for hearing into the matter.
On Nov. 22, a hearing is set in with the House Committee on Financial Services' Oversight and Investigations subcommittee for Dec. 15, and Jon Corzine is called in to testify.
The presence of MF Global COO Bradley Abelow, federal regulators from the CFTC, SEC and New York Fed, and representatives from Fitch, Moody's and Standard and Poor's have also been requested.