NEW YORK – MF Global Holdings Ltd, the futures broker run by former Goldman Sachs chief Jon Corzine, has filed for Chapter 11 bankruptcy after a tentative deal with a buyer fell apart.
The firm’s meltdown in less than a week is a stunning setback for Corzine, who sought to turn MF Global into a mini-Goldman. Corzine became CEO last year after losing his governorship of New Jersey, and his big bets on euro-zone debt sealed the company’s fate.
The bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier Monday, a person familiar with the matter said. Earlier, central banks and exchanges had slapped the broker with suspensions.
The bankruptcy makes MF Global the most prominent U.S. casualty yet from the euro-zone debt crisis, and harkens back to 2008 when Lehman Brothers collapsed at the height of the U.S. financial crisis.
But market participants said the impact from this collapse, far smaller, would likely be contained.
“Ultimately it will have lost all confidence of its investor base,” said Michael Epstein, a restructuring adviser with CRG Partners. “I’m not sure what restructuring it actually does. In some respects, it’s a baby Lehman, in effect.”
The New York Federal Reserve suspended MF Global from conducting new business with the central bank. CME Group Inc ICE Futures U.S. and Singapore Exchange all halted the broker’s operations in some form.
Three traders wearing MF Global jackets were seen leaving the Chicago Board of Trade prior to the opening of pit trading, and floor sources told Reuters they had been turned away after their security access cards were denied. They declined to comment.
MF Global scrambled through the weekend and into Monday to find buyers for all or parts of the company, while at the same time hiring restructuring and bankruptcy advisers in case nothing could be done.
The company’s shares and bonds plunged in recent days. In the past week, MF Global posted a quarterly loss, its shares fell by two-thirds and its credit ratings were cut to junk.
The company, which under Corzine ramped up more risky proprietary trading, is suffering because of low interest rates and the bets on European sovereign debt.
Corzine was trying to transform MF Global from a brokerage that mainly places customers’ trades on exchanges into an investment bank that bets with its own capital.
MF Global Finance USA Inc also filed for Chapter 11 protection, court records show. Both MF Global entities filed for protection from creditors with the U.S. bankruptcy court in Manhattan.
It may be easier for MF Global to work out a sale deal in bankruptcy than outside of it, said Bill Brandt, chief executive of Chicago-based turnaround firm Development Specialists Inc.
By filing for bankruptcy, MF Global freezes the value of its free-falling notes and gives potential suitors a clearer picture of the losses they would be taking on, Brandt said.
“If I were trying to do a deal fast, rather than sell the company itself, I’d see if I could peg the notes at a discounted price and find someone else to buy the distressed notes,” Brandt said.
If a sale is in the offing, the buyer may be a European bank or sovereign government, as such entities would be particularly keen on stopping the slide and maximizing the value of the notes, Brandt said.
“The real question is how many assets will be left to transfer,” said Naimh Alexander, an analyst at Keefe, Bruyette & Woods.
“Customers might move very quickly and it may be that every hour that passes shrinks the portfolio of assets that could be transferred” to a buyer, said KBW’s Alexander.
MF Global’s deeply distressed 6.25 percent notes maturing in 2016 fell 10.5 cents on the dollar to 39.5 cents, pushing their yield up to 31.6 percent, according to the Trace bond pricing service. The price had earlier fallen as low as 15 cents.
Its shares remained halted in New York.
The company hired boutique investment bank Evercore Partners Inc to help find a buyer, separate sources said this past week.