MF Global Holdings Ltd. (MFGLQ)’s U.K. administrators won the first round of a dispute with its New York brokerage arm over the value of internal trades used by the company to bet on distressed European sovereign debt.
James Giddens, the U.S. bankruptcy trustee for MF Global Inc., claimed the London-based subsidiary owes about 287 million pounds ($463.6 million) to settle internal repurchase agreements on Irish, Portuguese and Spanish bonds. KPMG LLP, which is winding up the U.K. unit, said it only owes about $60 million.
Judge David Richards ruled in a written decision handed down in today that the U.K. unit wasn’t in default and KPMG, its administrator, has the right to value the securities.
MF Global Holdings filed the eighth-largest U.S. bankruptcy on Oct. 31 after getting margin calls and bank demands for money at its brokerage following its investment in the debt of troubled European economies. Legal disputes between the U.K. and U.S. units have tied up assets worth more than $1 billion and hindered repayment of the brokerage’s clients and creditors.
Today’s decision will likely reduce the value of Giddens’ claims to recover money from the U.K. unit for the trades, James Acheson-Gray, the trustee’s spokesman, said in an e-mailed statement. The trustee is considering an appeal, he said.
KPMG still needs to negotiate the close-out value of the RTM portfolio with MF Global Inc. before the matter can be resolved, KPMG partner Richard Heis said in an e-mailed statement today.
MF Global’s investment in European debt, which the judge pegged at about $7 billion in October 2011, incurred significant losses, KPMG administrator Mike Pink said at a creditors meeting in London last night.
The repo dispute with Giddens is about “where that loss is borne,” Pink told creditors. “Our view is very clearly it’s Inc.’s problem.”
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