JPMorgan Seeks Lien on MF Global Assets to Cover Collateral

Bannasch’s Cadian Hedge Fund Doubled MF Global Stake
MF Global signage is displayed at 60 East 53rd St., in New York, U.S., on Tuesday, Nov. 1, 2011. Photographer: Stephen Yang/ Bloomberg

JPMorgan Chase & Co. seeks a lien on all of MF Global Holdings Ltd.’s assets and may have a lien on its operating account balance of $26.6 million, the bank said.

MF Global, which filed for bankruptcy with assets of $41 billion, has five operating accounts, all with JPMorgan. The bank may have a lien on the entire balance because of so-called setoff rights related to a credit line to MF Global where it acts and agent and lender, the New York-based bank said in a filing.

“JPMorgan asserts, and the debtors admit, that ‘by virtue of such setoff rights, such funds may be subject to liens in favor of’” JPMorgan, it said.

Lenders move to protect themselves after a bankruptcy filing. JPMorgan, the biggest U.S. bank, made the statement in an objection filed in U.S. Bankruptcy Court in Manhattan today to a cash management plan proposed by the company. Limits should be placed on the company’s use of cash, it said.

JPMorgan holds less than $80 million of the MF Global’s debt, said Joseph Evangelisti, a spokesman for the New York-based bank and acts as an agent to lenders for a $1.2 billion credit line to MF Global Holdings and a $300 million credit line to its broker-dealer unit.

Protect Collateral

JPMorgan seeks the on all of MF Global’s assets to protect its collateral, including proceeds of potential lawsuits, as well as reimbursement for its own legal fees in the bankruptcy, it said in the filing. The bank also asked Bankruptcy Court judge Martin Glenn in Manhattan to limit intercompany transfers and order the company to deliver it a budget and full list of its assets. MF Global has asked to have until Jan. 30 to report a full list of its assets and debts. Glenn will hold a hearing today beginning at 3 p.m.

“Although JPMorgan is hopeful the debtors will be able to generate meaningful recoveries for creditors, no one, including the debtors, can predict whether, when and to what extent this may actually occur,” lawyers from Simpson, Thacher & Bartlett LLP wrote, representing the bank.

JPMorgan said it won’t allow its collateral to backstop payment of the administrative expenses for MF Global’s bankruptcy. MF Global asked for a carve-out for some of its professionals of $4 million, which would apply if a reorganization fails and there aren’t enough assets to pay for the costs of liquidation.

No Recovery Prediction

MF Global’s request should be limited because the firm has “no reliable basis for predicting the extent to which creditors may expect to see a recovery here,” JPMorgan said in a filing today in bankruptcy court.

“There is a real risk that every dollar of cash collateral spent as the debtors propose will be potentially lost” if the request is granted, the bank said.

MF Global filed the eighth-largest U.S. bankruptcy yesterday, after failing to find a buyer over the weekend. The New York-based futures broker suffered a ratings downgrade and loss of customers after revealing it had investments related to $6.3 billion in European sovereign debt, leading to the filing. Regulators are investigating hundreds of millions of dollars that may be missing from its client accounts, two people have told Bloomberg News.

MF Global drew almost all of a $1.2 billion credit line that was amended last year to give it more liquidity, and its broker-dealer unit has borrowed about $210 million of a $300 million secured credit line. JPMorgan Chase is the agent to lenders who supplied credit for both loans.

The bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).