Of Special Interest
1st November 2011
MF Global Files for Chapter 11 protection
MF Global Holdings filed for chapter 11 protection on Monday. The broker / investment organsiation has struggled since it became known that it was holding $6.3bn in Eurozone sovereign debt. There were also more general concerns over the high risk strategy adopted by Jon Corzine, a former chairman of Goldman Sachs Group Inc. who took over as chairman and CEO in March 2010. He sought to alter MF Global from derivatives broker to organisation involved in principal trading.
Corzine tried to find investors or an outright buyer when things started to turn bad. The broker was in negotiation with Interactive Brokers late last week and through the weekend. In the early hours of Monday it is reported that Interactive Brokers determined they could not conclude a satisfactory deal with some suggestion that due diligence had uncovered more serious problems than had been realised.
Under US regulation the Securities Investment Protection Corp. will appoint a trustee to take over MF Global Holdings Ltd. SIPC are responsible for ensuring the orderly unwinding of any failed brokerage and also maintain a fund which can be used to compensate clients. MF Global listed assets of $41 billion and $40bn in liabilities. When organisations file for protection this type of near solvency is often listed. Usually within a matter of days the ratio changes to liabilities greatly outweighing assets. Keepers of statistics say that MG Global will become the eighth largest bankruptcy within the last 30 years.
A JC Flowers investment fund is one of the biggest investors in MF Global with a 10% equity stake.