Market Overview

MF Global Buys Itself a Little More Time

According to the San Francisco Chronicle, MF Global Holdings (NYSE: MF) is fighting hard to stay afloat after reporting its biggest quarterly loss and having it's ratings cut to junk by Moody's and Fitch.

All of the signs were pointing towards the end of the road for MF, but on Friday there were signs that the commodities and derivatives brokerage house could well live to fight another day.

According to the article, three anonymous sources said that MF tapped two bank lines completely. That is in contrast to an announcement in an October 25 investment presentation, where a spokesman said that MF had $1.3 billion in unused credit facilities.

"When things start to go bad it tends to spiral down fairly quickly," Craig Pirrong, a finance professor at the University of Houston, told the SF Chronicle. Drawing on the credit lines "is another indication of the financial stress they're undergoing.”

However, there were reports this morning that MF is is advanced negotiations to sell its futures unit, and that it hopes to reach a deal by Monday. That news led to the stock moving 40 percent.

The New York Times' Dealbook believes, though, that this selling of itself will only delay the inevitable. “Thursday's downgrade marks the latest blow to MF Global, which Mr. Corzine, the former Goldman Scahs chief and former New Jersey governor, has sought to transform itself from a derivatives and commodities brokerage into a full-blown investment bank. A centerpiece of that plan included taking on additional risk, and potential profit, by making more trades using the firm's own capital.”

“That plan has been dealt sharp setbacks over the past week, starting with a ratings downgrade by Moody's on Monday and MF Global's announcement of a $186 million quarterly loss the next day.”

ACTION ITEMS:

Bullish:
Traders who believe that MF Global can dig its way out of this ditch might want to consider the following trades:

  • MF Global did manage to shift that futures unit. Who knows what they will sell next? Anything's possible.

Bearish:
Traders who believe that the game is up may consider alternate positions:

  • Let's be honest, the chances of long term survival are slim.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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