WASHINGTON (AP) — MF Global Holdings Ltd., the securities firm run by former New Jersey Governor and Goldman Sachs head Jon Corzine, is seeking bankruptcy protection one week after reporting its biggest-ever quarterly loss.
MF Global shares plunged 66% last week. Besides the loss of $186.6 million for the fiscal second quarter, investors were spooked when MF Global's debt was downgraded to junk status. Credit-rating agencies expressed concern about the firm's $6 billion portfolio of European debt.
MF Global appears to be the first major U.S. casualty of Europe's debt crisis, although last week it sought to reassure investors that the investment in European sovereign debt was prudent. It blamed the big loss on weaker-than-expected trading revenue and one-time costs.
Trading in shares of MF Global Holdings Ltd. was halted early Monday. The Wall Street Journal and others reported that Corzine worked over the weekend to find a buyer. The Journal says that an effort to sell the firm to Interactive Brokers Group of Greenwich, Conn., fell through.
"If they don't find a buyer, the only other option would be someone willing to come in and provide enough financing to reorganize the company," said Christopher Ward, a bankruptcy attorney with Polsinelli Shughart PC. "I think that's unlikely, given the market conditions" and the company's debt, he said.
NY Fed Suspends MF Global From Doing New Business
The filing came after the New York Federal Reserve said it suspended MF Global from doing new business as a primary dealer. MF Global was one of 22 companies considered financially secure enough to sell U.S. government debt on behalf of the Fed.
Corzine took over the helm at MF Global early last year. He set out to grow the company into a global investment bank. In addition to futures and commodities trading, MF Global started making bets with the firm's own money, The Journal reported.
Corzine is also a top fundraiser for President Barack Obama. Corzine has helped raised at least $500,000 for Obama's re-election campaign since April, according to records released by the campaign.
MF Global turned a profit just three times in the past 12 quarters. As the European debt crisis threatened to spread, investors and analysts focused on the company's holdings of debt from Belgium, Italy, Spain, Portugal and Ireland.
Last week, Corzine said he expected the firm to "successfully manage these exposures to what we believe will be a positive conclusion in December 2012."
At worst, MF Global's bankruptcy could roil credit markets and make financial companies reluctant to lend to each other. It wouldn't equal the fallout from the failure of Lehman Bros. in 2008 because Lehman was bigger and more intertwined with other companies.
