Jon Corzine, CEO of MF Global, has resigned from all posts at the brokerage and “will not seek severance payments in connection with his resignation”, after the spectacular collapse of the global firm after it filed for bankruptcy at the beginning of this week.
MF Global also confirmed in a statement that Edward Goldberg, the lead director of the board of directors, and Bradley Abelow, the company’s president and chief operating officer, will continue in their current positions.
MF Global Holdings and its finance subsidiary MF Global Finance USA filed for Chapter 11 bankruptcy protection in the Federal Bankruptcy Court in Manhattan on Monday, marking a milestone in the fallout from the sovereign debt crisis. The board of directors for both entities says it has “authorized the filing of the Chapter 11 petition to protect their assets”.
In the filing, MF Global also listed JPMorgan as indenture trustee, with a claim of $1.2.billion as the trustee on behalf of bondholders, or “bond debt” as it was listed under “nature of the claim”, while Deutsche Bank came in second with four outstanding bond-debt claims.
MF Global listed total debt as $39.7 billion and assets of $41 billion in Chapter 11 papers, and it also cited assets of between $100 million and $500 million, and liabilities of between $10 million to $50 million for its finance unit.
Since then, analysts have spoken out about how large banks, including JPMorgan and Deutsche Bank, will face a manageable amount of MF Global exposure, despite these figures in the filing.
“In light of the bankruptcy filing, we examined the potential exposure of the US big banks to MF Global,” says David Hendler, head of US financial services at independent credit research firm CreditSights. “Our take-away message is that we expect some big US banks to have manageable to not material exposures to MF Global, although at this time none of the big banks has disclosed precise exposures.”
However, a source close to JPMorgan told Euromoney: “The $1.2 billion bond exposure, as cited in that filing, is actually a syndicated loan, where JPMorgan was the arranger. As with every syndicated loan deal, there are numerous banks involved and the exposure will be less than $100 million.”
On October 25, MF Global revealed a quarterly loss of $191.6 million and high levels sovereign debt.
As of September 30, MF Global had a net long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity (repo-to-maturity), including Belgium, Italy, Spain, Portugal and Ireland.
MF Global said in a statement that its laddered portfolio has an average weighted maturity of October 2012 and an end date maturity of December 2012, which is “well in advance of the expiration of the European Financial Stability Facility in June 2013”.
“Over the course of the past year, we have seen opportunities in short-dated European sovereign credit markets and built a fully financed, laddered maturity portfolio that we actively manage,” says Corzine in a statement. “We remain confident we have the resources and expertise to continue to successfully manage these exposures to what we believe will be a positive conclusion in December 2012.”
Subsequently, after revealing its results, MF Global faced a severe slash to two of its credit ratings, pulling them down to junk level.
On October 27, Fitch ratings agency placed MF Global Holding on Rating Watch Negative and adjusted MF Global’s Issuer Default Ratings (IDR) to BB+/B from BBB/F2 due to “increased risk-taking activities [that] have resulted in sizeable concentrated positions relative to the firm's capital base, leaving MF vulnerable to potential credit deterioration and/or significant margin calls”.
Moody’s Investor Services followed in Fitch’s footsteps the next day and downgraded MF Global Holdings long-term credit ratings to Ba2, which is two levels below the lowest investment grade rating.
However, less well-known but respected ratings agency Egan-Jones said on Friday that MF Global was “to re-establish its business while clients, employees and its business position slides. The big issues are the real losses from poor investments in the EU, whether MF can attract interest in salable assets, and if interested buyers are willing to step up currently or wait until a transaction is potentially blessed by a trustee in a reorganization [in the case of the Lehman Brothers’ reorganisation, Barclays was confronted with a fraudulent conveyance issue]. The most likely outcome is that the majors will pick off MF key employees and clients will flee. No news is bad news.”