Futures brokerage in US sounds alarm

Some customers are moving money away from struggling futures brokerage MF Global Holdings, according to hedge funds, rivals, and analysts, though the extent of the outflows is unclear.

Jon Corzine. REUTERS photo

Jon Corzine. REUTERS photo

Any substantial departures will likely put further pressure on MF Global’s chief executive Jon Corzine, a former New Jersey governor and former head of Goldman Sachs, to sell all or part of the company.

MF Global, whose shares have lost more than 60 percent of their value this week, had been trying to transform from a brokerage that mainly places customers’ trades on exchanges into an investment bank that bet with its own capital.

But its bets on bonds from eurozone countries, including those issued by Italy, Spain, Portugal and Ireland, have gone bad, prompting regulators to press it to boost capital and two rating agencies to cut the company’s debt rating to junk status.

One hedge fund that Reuters spoke to said MF Global’s problems have spurred the fund to move some of its assets to a different broker.

Three brokers at rival firms said they were signing up customers who were formerly at MF Global, and Patrick O’Shaughnessy, an analyst at Raymond James in Chicago, said his conversations with customers indicate there have been “significant departures.”

CEO Corzine held a call on Oct. 26 with staff, according to two people on the call. One source said MF Global is experiencing some “excess margin sweeping” by clients. Clients are “only taking some of their excess out, which some big institutions do every day,” the source said.

Friday, October 28, 2011