Corzine’s MF Global Board Said to Meet to Consider Options
Jon Corzine’s MF Global Holdings Ltd. was working through the weekend to consider options for the sale of the futures broker, according to a person with direct knowledge of the situation.
The firm’s board is meeting today in New York after convening yesterday, said the person, who asked not to be identified because the talks are private. MF Global was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, a person with knowledge of the matter said on Oct. 28.
Pressure is mounting on Corzine, the former governor of New Jersey and U.S. senator, after MF Global declined 67 percent last week, its bonds started trading at distressed levels and it drew down on its credit lines. The New York-based firm reported a $191.6 million quarterly loss on Oct. 25 and Moody’s Investors Service and Fitch Ratings cut its credit rankings to junk.
“It’s like they’re pulling the fire alarm,” Craig Pirrong, a finance professor at the University of Houston, said Oct. 28 on Bloomberg Television’s “Taking Stock” with Pimm Fox. “These kinds of companies, frequently when they run into this kind of trouble, they do spiral down.”
Corzine, who served as co-chief executive officer of Goldman Sachs Group Inc., reached out to his former firm about selling all or part of the company, according to two people with knowledge of the firm’s deliberations. Goldman Sachs may be interested in acquiring futures positions or other financial assets at the right price, said the people, who asked not to be named because the discussions were private.
Macquarie Group Ltd. (MQG) has examined MF Global’s books, though Australia’s largest investment bank isn’t working toward getting a deal done this weekend, according to a person with knowledge of the situation. Paula Chirhart, a spokeswoman for Macquarie in New York, declined to comment.
Barclays Plc is among banks that have looked at MF Global, another person said. Kerrie Cohen, a bank spokeswoman in New York, declined to comment.
Flowers Recommends Corzine
Corzine was recommended for the position at MF Global by former Goldman Sachs banker Christopher Flowers, the chairman and CEO of JC Flowers & Co. At the same time he took the job, Corzine became an operating partner of Flowers’s buyout firm, which in 2008 bought as much as $300 million of preferred stock in the firm at a conversion price of $12.50 a share.
JC Flowers, which controls one of the eight board seats at MF Global, is also a potential buyer, a person familiar with the matter said.
Diana DeSocio, an MF Global spokeswoman, declined to comment.
MF Global’s futures unit earns interest income from the collateral it holds to back its customers’ trades. That revenue has been cut as the Federal Reserve target interest rate on overnight loans has been between zero and 0.25 percent since late 2008. The firm reported interest income of $113.2 million in the quarter ended in September. When rates were at 5.25 percent in 2007, the company earned $1.77 billion in the quarter ended in March. MF Global also makes money by charging fees for brokering trades at futures and options exchanges.
Increased Sovereign Debt
Since Corzine, 64, arrived at MF Global in March 2010, he increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that have rattled markets.
MF Global, which has a market value of $198 million, owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation.
The company’s eight-member board consists of Corzine, MF Global’s chairman and CEO; Edward Goldberg, managing member of Dix Hills Partners LLC; David Gelber, chairman of Walker Crips Group Plc; Robert Sloan, managing partner of S3 Partners LLC; Martin Glynn, the former CEO of HSBC Bank USA; David Schamis, managing director at JC Flowers; David Bolger, former chief financial officer of Aon Corp.; and Eileen Fusco, vice chairman, Pro Mujer International, according to data compiled by Bloomberg.
The company tapped the entirety of two bank lines, three people with knowledge of the matter said last week. MF Global said in an Oct. 25 investor presentation that it had $1.3 billion in unused credit facilities, without giving a date for the tally.
MF Global’s lenders include Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co., Bloomberg data show.
The firm is getting advice from Evercore Partners Inc. (EVR) as it seeks buyers.
“We believe MF could generate proceeds from sale of its customer asset portfolio or FCM which frees up capital,” Niamh Alexander, an analyst at KBW Inc. in New York, wrote in an Oct. 27 note to clients, referring to a so-called futures commission merchant, or futures brokerage. “However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity.”
Alexander estimated MF Global could get about $765 million for the futures unit. A sale would also free up as much as $1.3 billion in regulatory capital MF Global is required to hold against its $12.7 billion in customer collateral, Alexander said.
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