Broker/dealer MF Global (MF) has filed for bankruptcy, leading exchanges in New York and Chicago to ban their traders from the floor until further notice. MF Global went through rocky times last week when they reported a Q2 loss and had their credit downgraded because of their substantial holdings of European bonds, seeing their stock lose 67 percent of its value. Now, the company has filed for chapter 11 bankruptcy protection and trading of their shares has been halted.
Rumored Buyout Falls Through
The troubled firm was the subject of buyout rumors on Friday that persisted throughout the weekend, with speculation about possible buyers including Goldman Sachs (GS), State Street (STT), and Macquarie (MQG.AX). In the end, though, it was holding company Interactive Brokers Group (IBKR) that was reportedly close to a deal on Sunday to save the firm, according to The Wall Street Journal. The deal, though, ultimately failed to materialize, leaving Chairman and CEO of Jon Corzine, former head of Goldman Sachs and governor of New Jersey, with no choice but to file for bankruptcy. The move to file prompted several exchanges, including the IntercontinentalExchange, Inc. (ICE), the CME Group, Inc. (CME), and Singapore Exchange, Ltd., to suspend MF Global from trading or ban its traders from the floor.
Big Bets of European Debts
The trouble for MF Global can be traced back to Corzine’s decision to place large bets on European sovereign debt, ultimately buying up $6.3 billion in bonds for Greek, Portugese, Irish, Spanish and Italian debt. What’s more, MF Global made the decision to invest in short-term European debt even while the majority of investors were running away. The bet proved riskier than anticipated and resulted in the collapse of the firm. The size of the bets, combined with turmoil in Europe, ultimately resulted in last week’s credit downgrades that contributed to crashing stock prices.
The collapse of MF Global ultimately hurts several other companies as well. Bankruptcy filings showed that Deutsche Bank (DB) was one of MF’s largest creditors, on the hook for over $1 billion, and their stock fell nearly 9 percent in early trading as a result. The biggest creditor, though, was JPMorgan Chase (JPM) with $1.2 billion of debt, which saw its stock drop over 2.5 percent by mid-day. Jefferies Group, Inc. (JEF), meanwhile, confirmed that they hold less than $9 million in exposure to MF Global but still saw their stock tumble over 6 percent. Trading in shares of MF Global, which are down 86 percent this year, remained halted.