The New York Fed suspended MF Global from conducting new business with the central bank on Monday and its shares were suspended, as the troubled brokerage nears a deal on its future.
As per a tentative plan, MF Global's holding company would file for bankruptcy protection and derivatives trader Interactive Brokers would buy the assets, the Wall Street Journal and the Financial Times reported.
The Federal Reserve Bank of New York has informed MF Global Inc. that it has been suspended from conducting new business with the New York Fed, the Fed said.
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.
MF Global, run by former Goldman Sachs Chief Executive Jon Corzine, has been struggling over the past week in which it posted a quarterly loss, its shares fell by two-thirds and its credit ratings were cut to junk.
Its shares were suspended before trading opened in New York, pending a statement.
Interactive Brokers would likely make an initial bid of about $1 billion during a court supervised auction for the U.S. futures brokerage, the WSJ said.
MF Global clients in London said the company wasn't taking on new business and they were closing out positions.
It was quite difficult to get our money out on Friday, because they had a lot of redemption calls, a trader, whose firm used MF Global as a brokerage said.
The company is not initiating any new position. They are trying to close down positions that they already have with clients that are open, the trader said.
The company is suffering because of low interest rates and bets it made on European sovereign debt, making it possibly the most prominent U.S. casualty yet from the eurozone debt crisis.
MF Global was in talks on Sunday with possible buyers, aiming squarely to do a deal, though all options remained on the table as the firm hired restructuring and bankruptcy advisers, sources familiar with the situation told Reuters.
The New York Times reported in its electronic edition that by Sunday evening, the talks had narrowed to one bidder, Interactive Brokers.
Sullivan & Cromwell's restructuring and mergers teams have joined the long roster of those advising MF Global, one source familiar with the situation said.
Weil, Gotshal & Manges was also hired to prepare potential restructuring options, a second source familiar with the situation said. The sources could not be identified by name because the talks were not public.
Weil would focus on MF Global's UK subsidiary if it needed to pursue a formal restructuring overseas, the Journal reported in its electronic edition.
The securities company also has hired firms Skadden, Arps, Slate, Meagher & Flom, the newspaper said.
MF Global and Interactive Brokers declined to comment. The law firms could not be reached immediately for comment.
A number of interested parties were considering several possible deals, including buying all or parts of MF Global, said the source, who requested anonymity.
The goal is squarely for some sort of M&A transaction, the source said, adding the situation was fluid.
Corzine, who became CEO in March last year after a term as New Jersey's governor, has been trying to transform MF Global from a brokerage that mainly places customers' trades on exchanges into an investment bank that bets with its own capital.
The plunge last week in MF Global's corporate bonds to distressed levels, and in its shares to below $1 at one point on Friday, makes it all the more urgent for the company to come up with some sort of solution before markets open on Monday.
MF Global has given potential buyers limited information about its financials and has not set up a data room for bidders to conduct due diligence, a buy side source earlier said.
The source, who is looking into deals both for the whole company and for its parts, said he was skeptical about the possibility of MF Global striking a deal over this weekend.
The company's positions are big and hard to value, especially the firm's sovereign risk exposure, the source said.
How do you put a price on that? How do you get a deal done when the right side of the balance sheet keeps moving so dramatically? the source said.
The company hired boutique investment bank Evercore Partners Inc to help find a buyer, separate sources said this past week.
(Additional reporting by Caroline Humer and Nick Brown in NEW YORK, Tom Hals in WILMINGTON, Jessica Hall in PHILADELPHIA, Narayanan Somasundaram in SYDNEY, Douwe Miedema and Dominic Lau in London; Editing by Dale Hudson, Vinu Pilakkott, Muralikumar Anantharaman and Erica Billingham)