Hot on the heels of the rogue trader incident that cost the firm $141 million a couple weeks ago, MF Global shares declined to $6 per share on Monday, March 17 from $17 on Friday, March 14. The loss prompted the company to issue a press release yesterday stating that its counterparty relationships are sound, that it is not experiencing any difficulty with its repo lines and has no exposure to subprime mortgage backed securities. And Joe Lewis, the Bermuda based football team owner who lost a billion dollars in the Bear Sterns debacle, he’s not a client. The CME Group, New York Mercantile Exchange and the Intercontinental Exchange issued releases stating that the company continues to meet its obligations to their clearing houses, and even the Commodity Futures Trading Commission stood up and said the firm continues to meet its regulatory requirements.
Richard Repetto, analyst for Sandler O’Neil + Partners, today issued a briefing addressing the repo issue not just for MF Global, but also for brokers Interactive Brokers, FC Stone and GFI Group. Repetto says that the primary reason for MF Global’s decline was fear that “repo lines, which are used to finance current obligations, were in jeopardy. As of December 31, 2007, MF had repo obligations of on its balance sheet of $22.4 billion in reverse repos (securities purchased under agreement to resell) of $30 billion.” Repetto goes on to explain that Interactive Brokers, FC Stone and GFI Group don’t have repo funding; so, maybe this isn’t the attribute that explains that painful losses experienced in the past couple of days.
Here’s another possible explanation. On March 13, Brodsky & Smith LLC filed a class action lawsuit, on behalf of all persons who purchased the common stock of MF Global LTD on its July 19, 2007 initial public offering. Brodsky and Smith allege MF Global “violated federal securities laws by issuing a series of material misrepresentations to the market, thereby artificially inflating the price of MF Global.”
Today things are looking up, relatively speaking, with shares trading at $8 per share.
Check back here for a copy of the suit and comments from the attorneys.
Tags: Bear Sterns, CME Group, MF Global, Nymex, The ICE
