MF Global filed for Chapter 11 protection today, less than a week after being downgraded to junk status.
The New York-based broker dealer was expected to sell its assets to Interactive Brokers, but the deal has been called off, according to reports. MF Global is headed by former New Jersey Governor and Goldman Sachs CEO Jon Corzine, who has been on the job since March 2010. Michael Stockman, a former mortgage trader, has been MF Global's chief risk officer.
JPMorgan and Deutsche Bank are the largest holders of MF Global’s debt, with JPMorgan having more than $1.2 billion and Deutsche Bank holding more than $1 billion in bonds.
The firm recorded losses of $191.6 million for its most recent quarter, and said in its quarterly statement on Oct. 25 that its losses were the result of market volatility, particularly in the European sovereign debt market. It said it had liquidity of $3.7 billion available as of Sept. 30, including $1.3 billion in available revolving credit.
The firm announced this morning that the Federal Reserve has suspended its status as a primary dealer. The Fed designated MF Global as a primary dealer earlier this year.
Back in June, the firm confirmed it hired Daniel Brereton to head its U.S. high yield and distressed debt trading group. A company representative said at the time that the firm was in expansion mode and would be hiring additional high yield trading and sales professionals.
Moody’s Investors Service downgraded MF Global to junk status on Oct. 27, lowering its issuer and senior unsecured bond ratings to 'Ba2' from 'Baa3'. Standard & Poor’s, which rates the company 'BBB-', put the company on CreditWatch with negative implications on Oct. 26.
According to a report from ASR sister publication National Mortgage News, the firm's bankruptcy and its ensuing suspension as a primary dealer shook the larger market Monday morning, putting downward pressure on rate-indicative bond yields.
The long-term rate-indicative 10-year yield had dropped below 2.2% at press time early Monday afternoon. The 10-year yield had been as high as 2.4% late last week.
Meanwhile, in related news, MF Global UK also entered special administration regime. The U.K.'s Financial Services Authority (FSA) confirmed in a release that the firm's U.K. branch has entered the special administration regime (SAR).
Additionally, the FSA added that Richard Fleming, Richard Heis and Mike Pink of KPMG have been appointed as joint special administrators after a decision taken by the board of MF Global UK.
The SAR was adopted in February 2011 after the collapse of Lehman Brothers and, unlike an ordinary corporate administration, it sets special objectives for the administrator. These cover the quick return of client assets and the timely engagement with market infrastructure. According to the FSA's release, this is the first time the SAR has been initiated.