Goldman Could Get ‘Windfall Profit’ If It Were to Buy MF Global, Bove Says

Goldman Sachs Group Inc. (GS) is among firms that could gain by buying part or all of MF Global Holdings Ltd. (MF), said Richard Bove, an analyst at Rochdale Securities LLC.

“Goldman could benefit from MF Global’s plight,” Bove said in a note today. “One might argue that Goldman is over capitalized and that it has too much liquidity. Buying some or all of MF Global might create the opportunity to make a windfall profit.”

MF Global, run by Chairman and Chief Executive Officer Jon Corzine, is exploring strategic options, including a potential sale, after reporting its biggest quarterly loss ever and having its credit ratings cut by Moody’s Investors Service, a person with knowledge of the matter said today.

The firm needs to generate liquidity and find a partner with excess capital and a “sizable” trading operation, Bove said in a telephone interview. Goldman Sachs, which Corzine helped run from 1994 to 1999, and Citigroup Inc., both based in New York, would be “logical buyers,” he said.

David Wells, a Goldman Sachs spokesman, and Danielle Romero-Apsilos at Citigroup declined to comment.

Large deposit-taking banks may not want to buy MF Global because they would have to set aside cash to back the futures trades placed by the firm’s customers, said Allan Zavarro, the former global head of futures trading for ABN Amro Bank NV. Regulatory capital in the range of 6 percent to 10 percent of client funds on deposit must be set aside by the broker or bank, Zavarro said.

Capital Allocation

“I’m not sure the big banks would want a big futures position on their books now because they have to allocate regulatory capital to it,” he said in an Oct. 25 telephone interview. As of Aug. 31, MF Global had $7.2 billion of customer funds in segregated accounts, according to the Commodity Futures Trading Commission.

In 2008, MF Global sold $300 million in preferred shares and notes to the public and as much as $300 million in equity- linked securities to buyout firm JC Flowers & Co. to help repay a $1.05 billion bridge loan.

Evercore Partners Inc. (EVR), the investment bank founded by former U.S. Deputy Treasury Secretary Roger Altman, might also show interest in a deal with MF Global, Bove said. The firm is advising MF Global on the review of its business, said a person with knowledge of the matter today. Evercore may be interested in providing advisory clients with the ability to raise funds through a fixed-income trading platform, Bove said.

“It wouldn’t surprise me at all if Evercore jumped up as a company that was going to acquire them,” he said. Such a deal might not resolve MF Global’s liquidity needs, he said.

Evercore would more likely be interested in fee-based, low- capital-intensive businesses, said Warren Gardiner, an analyst for Ticonderoga Securities LLC.

Dana Gorman, a spokesman for Evercore, declined to comment.

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

4:45

Oct. 26 (Bloomberg) -- Sean Egan, president of Egan-Jones Ratings Co., talks about challenges facing MF Global Holdings Ltd. and the outlook for the company. Bonds of the futures brokerage tumbled to levels considered “distressed” as the firm struggles to transform itself into an investment bank. The company is exploring strategic options, including a potential sale, according to a person with knowledge of the matter. Egan speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)