MF Global files for bankruptcy

MF Global filed for bankruptcy on Monday morning in New York, after the Federal Reserve Bank of New York as well as the major exchanges suspended dealings with the broker-dealer led by Jon Corzine.

This followed its suspension as a primary dealer by the New York Fed, as well as the suspension on trading by MF Global on the Chicago Mercantile Exchange, ICE and NYSE Liffe, which said MF Global clients were limited to liquidation-only trading.

The CME said it would process any transfers at the last settlement price at the request of customers, but those wanting to liquidate would need to contact MF Global. It noted that MF Global’s floor brokers and traders guaranteed by the broker-dealer were blocked from access to the trading floor

MF Global earlier on Monday morning had sent a note to clients of its spread betting business informing them it had taken a “strategic decision” to discontinue the operations with immediate effect, requiring them to either liquidate their positions immediately or post 100 per cent of their value.

JPMorgan Chase was listed in the bankruptcy filing as the largest unsecured creditor to MF Global with $1.2bn in outstanding debt. But a person close to the bank said it was only an agent on most of that debt and less than $80m out of the $1.2bn was JPMorgan’s direct exposure.

The bankruptcy filing listed MF Global Finance USA with $100 million to $500 million in assets and $10 million to $50 million in estimated liabilities.

MF Global had been close to a sale of the bulk of its assets to electronic broker and marketmaker Interactive Brokers Group late on Sunday, according to people familiar with the situation. Thomas Peterffy, chief executive and founder of Interactive, told the Financial Times on Monday morning he was unable to comment. MF Global also declined to comment.

Following the New York bankruptcy filing for MF Global Holdings and MF Global Finance USA, the British High Court appointed administrators to the MF Global UK arm. KPMG executives Richard Fleming, Richard Heis and Mike Pink were appointed as joint special administrators of the UK business which employs 725 staff.

“The UK and overseas operations of MF Global UK Limited have ceased trading and the joint special administrators are working with the regulatory authorities, clearing systems and other counterparties in relation to the orderly wind down of the trading operations,” they said in a statement.

They also noted it was the first use of the new UK special administration regime for investment banks, which would prioritise the return of client money and remaining assets in winding up the company for the benefit of creditors.

The bankruptcy of the holding company for MF Global is part of a complex end to a saga that began last week when a slew of credit rating downgrades threatened the company’s viability and left it racing to find a buyer.

In a tense weekend of sale talks, MF Global hired US bankruptcy lawyers to prepare for its demise.

Sullivan & Cromwell, Weil Gotshal & Manges and Skadden were all hired as US legal counsel to work on different aspects of a possible restructuring, bankruptcy or sale. Evercore, the independent investment bank, advised MF Global on the sale.

The bankruptcy and inevitable sell-off are an ignominious end to the plans of Mr Corzine, chief executive of MF Global and former chief executive of Goldman Sachs, who had hoped to expand the business from its roots as a futures broker into a full-service investment bank.

He took responsibility at an earnings call last Tuesday for a $6.3bn bet on European sovereign debt that ultimately proved the firm’s undoing – not because the trades soured but because rating agencies said they were too aggressive and showed lax risk management.

Additional reporting by Jeremy Grant