Market Overview

MF Global on the Verge of Bankruptcy

Think Goldman Sachs is having a bad year? Its former CEO isn't doing too well either.

Jon Corzine was once in charge of the always in peril Goldman Sachs (NYSE: GS). Corzine's new company, MF Global (NYSE: MF), may not be fighting the same battles as his former employer, but that doesn't mean that times aren't tough. In fact, The Guardian claims that the firm is on the verge of bankruptcy.

According to The Guardian, the company has been struggling after posting a quarterly loss; since that time, the company's stock dropped by two-thirds, and its credit ratings were, as The Guardian puts it, “cut to junk.”

MF Global is attempting to file for bankruptcy protection while selling its assets to Interactive Brokers Group (NASDAQ: IBKR). The Guardian says that Interactive Brokers would “likely make an initial bid of about $1bn (£625m) during a court supervised auction,” citing a report by the Wall Street Journal.

The Guardian also quoted an unnamed source who said that the goal is “squarely for some sort of M&A transaction.”

This morning, MarketWatch reported that the Federal Reserve Bank of New York has suspended MF Global from conducting business with the bank. MarketWatch quoted the following statement:

“This suspension will continue until MF Global establishes, to the satisfaction of the New York Fed, that MF Global is fully capable of discharging the responsibilities set out in the New York Fed's policy, 'Administration of Relationships with Primary Dealers,' or until the New York Fed decides to terminate MF Global's status as a primary dealer,” The New York Fed said.

ACTION ITEMS:

Bullish:

If you think that MF Global will indeed sell its assets, then consider the following trade:

  • Interactive Brokers is poised to benefit from MF Global's demise.

Bearish:

If you don't expect Interactive Brokers to benefit from MF Global's downfall, then consider this alternative:

  • Evercore Partners (NYSE: EVR) could benefit from having one less competitor on the market.
  • The same could be said for Corzine's former employer, Goldman Sachs.

Follow me @LouisBedigian

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