MF Global Files for Bankruptcy

By MIKE SPECTOR And JACOB BUNGE

MF Global Holdings Ltd. filed for Chapter 11 bankruptcy protection in New York on Monday morning after an effort to sell itself to Interactive Brokers Group Inc. failed.

The filing sent financial exchanges around the world scrambling to address the uncertainty swirling around the collapsed broker-dealer.

The firm's rapid decline represents a stunning turn of events for Jon Corzine, a former chairman of Goldman Sachs Group Inc. who took over at Mf Global in March 2010, just four months after losing a re-election bid as New Jersey governor. He set out to change MF Global from a midsize derivatives broker to a full-fledged investment bank that took risks with its own capital.

MF Global had a tentative deal to sell assets to Interactive Brokers Group as of late Sunday, but the agreement fell apart as talks continued overnight, said people familiar with the matter. Discussions ended around 5 a.m., one of these people said.

Interactive Brokers ultimately walked away from a deal as 'due diligence' work raised concerns about the business, said people familiar with the matter. Representatives for MF Global and Interactive didn't immediately respond to requests for comment.

Lawyers from Skadden, Arps, Slate, Meagher & Flom worked through the night last night trying to get a deal done and preparing a bankruptcy filing for the securities firm. Other law firms playing a role advising MF Global included Weil, Gotshal & Manges and Sullivan & Cromwell, according to people familiar with the matter.

MF Global had been considering filing just its holding company for bankruptcy protection and then executing the sale. That plan is now off the table, one of the people said. Voluntary bankruptcy petitions for MF Global Holdings and MF Global Finance USA Inc. hit the docket in a U.S. bankruptcy court in Manhattan mid-morning on Monday.

MF Global listed assets of $41 billion and more than $39.68 billion in liabilities in its bankruptcy petition.

MF Global's deal with Interactive Brokers has been called off, prompting the firm to file for bankruptcy protection in New York, Jacob Bunge reports on Markets Hub. Photo: Reuters.

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Associated Press

MF Global CEO Jon Corzine

MF Global listed some of its largest unsecured creditors in court documents as J.P. Morgan Chase Bank andDeutsche Bank Trust Co., trustees for $1.2 billion and $325 million in bond debt, respectively. A person close to J.P. Morgan said the filing erred in describing its holdings and that the bank has less than $80 million in exposure on a $1.2 billion syndicated loan. Other big unsecured creditors include CNBC, Bloomberg Finance LP and a host of law firms.

A spokesman for CNBC, listed as a creditor in the bankruptcy filing, said the money owed them is from MF Global TV ads.

The $41 billion in assets listed in the bankruptcy filing would make MF Global the eighth-largest corporate bankruptcy filing in the U.S. at least since 1980, according to research firm BankruptcyData.com.

One potential loser in the deal is J.C. Flowers II LP, the private-equity fund. It owns more than 10% of MF Global's Series A preferred stock, according to the company's bankruptcy petition. The fund's parent, J.C. Flowers & Co., had been in talks with MF Global in recent days about a possible takeover, but that too didn't materialize.

It wasn't clear whether any of the suitors earlier circling MF Global would still be interested in the brokerage or its parts. One person whose firm had been eyeing the company before the bankruptcy filing said interest remains but no real deal movement was expected until the market turmoil unleashed by the filing settled down and assets could be sized up.

Financial exchanges barred MF Global's brokers from exchange floors and put limits on the firm's trading Monday to prevent the company's bankruptcy filing from rippling through to wider markets.

CME Group Inc. and IntercontinentalExchange Inc. halted trading by MF Global employees in Chicago, New York and Europe, with CME security in one case escorting employees off an exchange floor. Firms that used MF Global to clear their trades were limited to only liquidating existing positions.

The steps were an effort by the exchanges to safeguard their markets from any fallout of a failure by MF Global, one of the biggest players on derivatives markets around the world. The company, as a member of exchanges' clearinghouses, is responsible for clearing the transactions of its brokerage clientele.

Traders scrambled to find new firms through which to clear trades and to determine how to close out their business with MF Global. Volumes were light in U.S. crude-oil futures at CME's New York Mercantile Exchange and in soft commodities such as coffee and sugar on ICE, as firms lost access to the markets. Transferring to another firm for clearing can take time, traders said.

MF Global clears a large volume of floor trades in agriculture commodities such as corn and soybeans at the Chicago Board of Trade, causing a slowdown in the pits there. Some liquidity dried up in stock-index futures at the Chicago Mercantile Exchange.

Coming into work, Kevin Boyle, a veteran trader at Dowd-Wescott in Chicago, was stopped at the turnstiles at the Chicago Board of Trade, which is owned by CME. He hasn't been told what happens next but, with positions in corn and wheat options, Mr. Boyle was concerned about losing money. Dowd-Wescott uses MF Global to clear trades.

Singapore Exchange Ltd. told traders that MF Global agreed it wouldn't enter into new transactions Monday, though the exchange group said the brokerage continued to meet its financial obligations to SGX's clearinghouse.

MF Global has spiraled downward in the past week, pressured by its exposure to European sovereign debt, a series of credit downgrades and a surprise quarterly loss.

The Federal Reserve Bank of New York has suspended MF Global's status as a primary dealer, citing uncertainty around MF Global's ability to meet its requirements to do business directly with the bank.

Stephen Harbeck, head of the Securities Investor Protection Corp., said of MF Global: "We're aware of the situation and in touch with the SEC." He declined to say whether the SIPC, which works to restore funds to investors with assets at bankrupt brokerage firms, would get involved.

—Shira Ovide, Gina Chon and Aaron Lucchetti contributed to this article.

Δευτέρα 31 Οκτωβρίου 2011