MF Global Holdings Ltd. (MF)’s bankruptcy filing may prompt the U.S. Federal Reserve to “rethink” the definition of systemically important firms and to expand its oversight, according to bank analyst Richard Bove.
“What we’re looking at is this view of what is interconnected in the financial industry,” Bove said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt before the filing today. MF Global “was not thought to be interconnected and it was not brought in under the regulatory guidelines. Therefore, the company was allowed to do what it wanted,” he said.
Companies such as Jefferies Group Inc. (JEF) and Raymond James Financial Inc. (RJF) may come under greater supervision by regulators after MF Global, run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy, said Bove of Rochdale Securities LLC in Lutz, Florida.
The fallout from MF Global’s decision to make a bet on European bonds with a growing debt load that outpaced its earnings means that “people at the Fed are now going to rethink” what a systemically important financial institution should be, Bove said. An interconnected firm whose failure could affect larger institutions “must be regulated” under the Dodd- Frank financial regulatory law, he said.
MF Global listed total debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. The New York-based firm’s finance unit, MF Global Finance USA Inc., also filed, with debt of as much as $50 million and assets of as much as $500 million.
“We’ve learned in a very difficult fashion both in 2008 and with the European debt crisis that there has to be limits,” Bove said. “You can’t allow debt to grow faster than income, and that is what no one has been willing to stop.”
Richard Khaleel, a spokesman for New York-based Jefferies Group, and Steve Hollister of St. Petersburg, Florida-based Raymond James declined to comment on Bove’s remarks.
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