Shares of MF Global Holdings Ltd hit another all-time low and its bonds were in freefall on Friday as troubles intensified for the U.S. futures brokerage that is looking to sell off units in order to retain customers and to survive.
The company run by former Goldman executive Jon Corzine has shed 63 percent of its market capitalization this week. That could hamper MF Global's dealmaking ability, while at the same present possible buyers with assets at big discounts.
Goldman Sachs Group Inc, State Street Corp and Macquarie are all eyeing MF Global or parts of it, The Wall Street Journal reported.
In the last few days, the brokerage posted a quarterly loss and two ratings agencies cut its debt rating to junk -- underscoring the bad bets MF Global made on bonds of countries in the euro zone, which is now battling a debt crisis.
MF Global stock dropped as much as 31 percent in early trading to 99 cents, its lowest ever, but later rebounded to $1.35. It was the second most actively traded stock on the New York Stock Exchange.
The MF Global team has no choice but to quickly shrink its balance sheet to raise cash and then to sell the cash into the market to show 'strength', Brad Hintz, a senior analyst at Bernstein Research, wrote to clients.
These events play out in days.
The company's bonds were trading at distressed levels in the mid-40s, after touching a morning low of 38 cents on the dollar. That was down from Thursday when the bonds, maturing in 2016 with a 6.25 percent coupon, were at 70.
MF Global, which is emerging as one of the hardest-hit U.S. firms in the fallout from Europe, had offered the notes at par in August.
The company tapped Evercore to advise it on strategic options including a possible sale, said a source familiar with the situation. A second source, who was briefed on the matter, said the company is focused on doing a smart deal, a fair deal, and that it did not enter the talks with specific targets and objectives.
We believe MF could generate proceeds from sale of its customer asset portfolio or Futures Commission Merchant which frees up capital, Keefe Bruyette & Woods analyst Niamh Alexander wrote to clients. However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity, she wrote.
MF Global has declined to comment on its troubles.
CORZINE AND EUROPE'S FALLOUT
Some customers are diverting money from the New York-based brokerage, according to hedge funds, rivals and analysts, though the extent of the outflows remained unclear. (Graphic of MF Global's market share among futures commission merchants: http://link.reuters.com/syz64s )
MF Global's bank loans were lower Friday amid rumors the company drew down its revolving credit lines, separate sources said. The extended revolver due 2014 is quoted 60-65 on Friday after a large piece of the paper is said to have changed hands on Thursday at 70, the sources said.
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.
But its bets on bonds from euro zone countries, including those issued by Italy, Spain, Portugal and Ireland, have gone bad, prompting regulators to press it to boost capital and ratings agencies to issue their warnings.
The loss of its investment grade rating could hasten the exodus of customers away from MF Global.
Given the uncertainty around timing of the agencies' next move, management needs to move quickly in order to avoid client defections and either work on strategic options or work with the agencies to get back to stable status, Deutsche Bank analyst Michael Carrier wrote to clients.
European Union leaders stuck a deal this week to relieve the continent's sovereign debt crisis -- potentially good news for MF Global -- but many details of the EU deal still need ironing out.
In Asia, the Singapore Exchange said MF Global's unit in the city state is meeting its financial obligations as a clearing member. That echoes assurances Thursday by U.S. clearers CME Group Inc, IntercontinentalExchange Inc and options clearinghouse OCC.
(Reporting by Jonathan Spicer, John Balassi, Philip Scipio, Paritosh Bansal, Jeanine Prezioso and Herb Lash in New York, and Charmian Kok in Singapore; Editing by Matthew Lewis and Phil Berlowitz)