Financial regulators have stepped in to help MF Global Holdings Ltd.’s U.K. administrators in negotiations for the return of more than 1 billion pounds ($1.5 billion) of client money held by banks.
The Financial Services Authority has been involved in the discussions without taking formal action against any of the banks, according to two people with knowledge of the situation who declined to identified because the negotiations are confidential. FSA spokesman Chris Hamilton said the regulator had been speaking to banks about the return of MF Global client money and assets.
At least $2.7 billion of MF Global’s U.K customer funds were frozen in external bank accounts when the broker collapsed on Oct. 31 after making losing bets of European sovereign debt. JPMorgan Chase & Co., Bank of New York Mellon Corp., and Citigroup Inc. were among the banks holding cash and assets for MF Global’s clients, according to documents released by KPMG.
The funds proving difficult to recover are those held in unsegregated accounts which lack special protection, Richard Heis, the lead administrator at KPMG LLP, said at a creditors meeting last week. KPMG said it has threatened lawsuits against some of the financial institutions which held money and assets for MF Global clients.
KMPG was appointed to wind up the U.K. unit in the first use of a new special administration system that allows the FSA to issue directions to administrators. KPMG spokesman Giles Robinson didn’t immediately respond to requests for comment.
About $1.2 billion in segregated customer funds, which are held separately, has been identified by KPMG and 82 percent of the money has been recovered. Efforts to recover money in unsegregated accounts that weren’t separated from MF Global’s own money have been an “ongoing struggle,” Heis said at the creditors meeting.
Unlike segregated customers, clients with unsegregated accounts will be treated as unsecured creditors, meaning they may not get all their money back, KPMG has said.
Spokesmen for JP Morgan and BNY Mellon declined to comment. Jeffrey French, a spokesman at Citigroup, didn’t immediately respond to an e-mail requesting comment.
KPMG has yet to return any money to clients or creditors. Heis said the administrators hoped to make an interim distribution to segregated account holders as soon as possible after a U.K. court hearing scheduled for Feb. 3.