Race to limit MF Global damage
Clients scramble for their money as $700m goes missing after shock collapse of US brokerage
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Wednesday 02 November 2011
Regulators and administrators around the world are engaged in frantic efforts to close trading positions held by the bankrupt brokerage firm MF Global, amid allegations that the company improperly dipped into customer accounts to fund the disastrous eurozone bets that brought it down.
The CME Group, which runs the Chicago Mercantile Exchange where MF Global did much of its derivatives trading, said it had determined the company failed to properly segregate client funds, and the FBI last night began a preliminary examination of the situation. At a bankruptcy court hearing in New York, though, MF Global's lawyers denied management was aware of any shortfall in client accounts.
The company's 2,900 global employees - including 725 in London at the company's Canary Wharf headquarters - remain in limbo. The bankruptcy hearing was called to to determine if MF Global could unlock $8bn held as collateral by its banks in an effort to keep some employee salaries flowing as the company is wound down.
The collapse of MF Global, which was run by former Goldman Sachs chief executive and New Jersey Governor Jon Corzine, has sown chaos and confusion in some parts of the derivatives markets where it was most active. At one point, trading in grain futures and options had to be suspended in Australia, where MF Global was one of the biggest players in the market for agriculture futures. The volume of oil and gold trading had plunged to less than half the normal level, though it began to recover late yesterday.
Mr Corzine fought all weekend to sign a deal to sell the company to a US firm called Interactive Brokers, but the deal collapsed at 5am on Monday morning as accounting problems came to light. MF Global filed for Chapter 11 bankruptcy protection on Monday, with its subsidiaries around the world also falling into bankruptcy or administration. Client accounts remain frozen in many countries, causing difficulties for some traders, though there was no early sign that these problems would cause the kind of fall-out that followed the collapse of Lehman Brothers in 2008.
In the UK, the administrators appointed to liquidate the company's operations in London spent yesterday closing out billions of dollars of trading positions.
KPMG's Richard Fleming, one of the three administrators, said he was confident UK clients would see their money again. "Our strategy is where we have clients whose position is reconciled, and are due funds, then that money will flow," he said.
Some financial firms did suffer share price falls because of their perceived links with the collapsed broker. Jeffries, a US investment bank, fell 10 per cent on Monday and was forced to put out a statement that it had not held on to a significant amount of the $325m in bonds that it underwrote for MF Global in August; yesterday its shares fell a further 9 per cent and it put out a statement saying that it did not have the same kind of exposure to eurozone sovereign debt as MF Global.
It was a $6bn bet on Italian, Spanish, Portuguese, Irish and Belgian bonds which proved MF Global's undoing and ended Mr Corzine's dream of turning the company a mini-Goldman Sachs.
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