MF Global: Another coalmine canary?

MF Global

The good news is that MF Global isn't big enough or connected enough for its collapse to risk serious damage to the financial system.

It is a medium size broker, with a leading position in futures, which was in the process of being turned into a mini Goldman Sachs by its prominent chairman, Jon Corzine - who, as it happens, was chairman of Goldman for much of the 1990s (before a foray into US politics as the Democrat governor of New Jersey).

With gross assets of about $40bn, MF Global's lurch into bankruptcy protection under America's Chapter 11 legislation will keep a few bankruptcy lawyers and accountants gainfully employed for some time.

But there should not be a domino effect of other bankruptcies.

There is bad news, of course, which is that it and Dexia - the Franco Belgian bank that has had to be rescued by taxpayers in Belgium and France - are beginning to look like canaries in a life-imperilling coalmine.

What they have in common is heavy reliance on short-term wholesale finance and big loans to eurozone governments whose debts are seen to be excessive.

MF Global disclosed last week that it has a "net long position of $6.3bn in a short-duration European sovereign portfolio…including Belgium, Italy, Spain, Portugal and Ireland".

Or to put it another way, it had lent a sum that is equivalent to five times the value of the equity capital it holds as protection against potential losses to governments whose ability to repay all they owe is moot.

Unsurprisingly the hedge funds, professional investors and banks that lend to MF Global or have funds on deposit with MF Global decided there might be safer and sounder places to lodge their cash.

When that happens, when a financial firm's creditors want their money back, it's cheerio, adieu and goodnight - unless, that is, a friendly central bank is prepared to bail out said firm.

MF Global is not the kind of financial institution that the US Federal Reserve or the European Central Bank feels minded to prop up with emergency loans.

Which is simply a reminder that a number of other European banks would be pushing up the daisies by now, if the ECB had not felt minded to keep them on life support, for the putative health of the eurozone economy.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 134.

    106. Peter Tosh: Are you serious? Not one Euro Zone land consulted their electorate before abolishing their traditional currency and imposing this failed and flawed model. The political classes should pay for the catastrophic consequences of their stupid and ignorant actions.

  • rate this

    Comment number 133.

    Not as easy as that justin150. The FSA has frozen all the client accounts which is going to put serious pressure on many other substantial traders. Do the idiots want to capsize trader in the business?

  • rate this

    Comment number 132.

    My wife nearly accepted a job offer from MF Global a month or so ago. Thankfully we decided she was best where she is now. Thankfully.....

  • rate this

    Comment number 131.

    1) medium sized corporation gets its strategy and liquidity wrong. Goes bust.
    2) this firm was doing what people are begging the ECB to do - buy european periphery sovereign debt.


  • Comment number 130.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 129.

    Oh dear - the markets are sad today - they are sad because Papandreau decided to revert to 'Democracy' - and the markets don't like Democracy - it's too uncertain - they prefer AUTHORITY to make sure they get paid

    All the morality questions are out in the open and yesterday we were treated to a wonderful version of 'Thriller' by the protestors. Much better than boring bankers in ill-fitting suits

  • Comment number 128.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 127.

    People think we're in the middle. But in fact we're at the beginning. Politicians, under bank lobbying, chose printing money to bailout the banks and the state because it was easy/lazy. The policy has failed.
    Reality is coming now. The Greeks will chose default. Others will follow. Here consumer and SME defaults, unemployment and deficits will go parabolic next summer.

    De-regulate now.

  • rate this

    Comment number 126.

    The outcome of referendum is guaranteed by the wording of the question. We cannot have democracy that works good god.

  • rate this

    Comment number 125.


    I'd be very surprised if they voted for this deal. But if they don't the Greek government have a bargaining chip. Good - this is the first time the Greek future has been put to the Greek people. And papandreau is almost certainly sacrificing his career for Greece. Good for him too.

  • rate this

    Comment number 124.

    Let's hope the Greeks vote out of the carousel of chaos.
    However, they will be chained in. The facade will be maintained somehow.

  • rate this

    Comment number 123.

    bigirv100 You're amasing another apologist for all things supposedly financial that are a complete sham, including brokerages who are there purely for self interest. Yes I have done my research thank you together with the millions of taxpayers who have been cheated & made to pay for a corrupt business model. Try lecturing your freinds in the City regarding their moral obligations first.

  • rate this

    Comment number 122.

    • 117:
    I doubt its the EU who's taking control..........
    Consider the Bankers.
    Consider who they are, where they originate, their social circle, and so forth.
    Then you will know the beneficiaries of these upheavals.
    To think is to know.

  • rate this

    Comment number 121.

    "Deutsche Bank's exposure to MF has seen it's share price lose 8% today"

    DB share price hit could be something to do with the $1bn they are owed by MFG..JPMorgan too owed $1.2bn..

    When you finish stay on ZH, press home and read the other MFG pieces exposing corruption

  • rate this

    Comment number 120.

    Amazing. They know the casino style market isn't working, but they still refuse to restore proper regulations. The Stock market is still no place for investors, only spreadbetters and shorters !
    Who was it who said, that everyone should take part in at least one revolution during their lifetime ?
    I just hope a balanced mixed economic policy eventually comes out of these crises.

  • rate this

    Comment number 119.

    The elephaaant in the room is in must and has gone rogue.
    Get out the elephant gun before he tramples the dead parrot.

  • rate this

    Comment number 118.

    The financial and corporate elite want EU members to borrow more money in order to make their debts larger and are being "encouraged" to look toward Asia and the Gulf. Wake up good people of the UK. What your leaders have in mind for you are more economic catastrophes and legal constraints. Increasing draconian "measures" will be introduced. All Democratic rights to protest will be curtailed.

  • rate this

    Comment number 117.

    The UK's Democratic freedoms, laws, finances policing, armed forces and NHS are being systematically destabilised and deliberately dismantled by Cameron in readiness for an EU takeover. The Uk is already subservient to EU law. 80% are now dictated by the Superstate. Cameron already filters off UK's taxpayers' money of approx £37.5 million a day to the EU.

  • rate this

    Comment number 116.

    Cameron has always been in cahoots with the global financial and corporate elites' agendas. The latter have been manipulating world events over the years to ensure that a globalized power base becomes reality for them in 2012, starting with an EU dictatorship.

  • rate this

    Comment number 115.

    The 1955 leaked summary report from the secret Bilderberg meeting made it clear that the UK public were manipulated into believing the propaganda that they were simply joining an economic community. Their agenda was always much more comprehensive as Robert Peston well knows! "To arrive in the shortest possible time at the highest degree of integration, beginning with a common European market."


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