Some customers are moving money away from struggling futures brokerage MF Global Holdings Ltd, according to hedge funds, rivals, and analysts, though the extent of the outflows is unclear.
Any substantial departures will likely put further pressure on MF Global 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 slumped 15.9 percent on Thursday and 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.
However, 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 reporters spoke to said that 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.”
Three other customers said they were not moving their accounts.
Client funds that are typically held in so-called “segregated accounts” should be protected even in the worst-case scenario of financial failure, they said.
Meanwhile, MF Global declined to comment.
Its management has been working to try to reassure customers and staff, sources said.
Corzine held a call on Wednesday with staff, according to two people on the call.
“He said things are fine, pretty much,” one source said.
Another source, who was briefed on the matter, said MF Global is experiencing some “excess margin sweeping” by clients, but not a loss of core positions.
Clients are “only taking some of their excess out, which some big institutions do every day,” the second source said.
Moody’s Investors Service and Fitch Ratings on Thursday slashed MF Global’s debt rating to junk. Standard & Poor’s said on Wednesday it might also cut the New York-based company’s counterparty credit rating to junk.
On Wednesday, MF Global sent a letter to customers listing protections available to its commodities, futures, and options securities clients.
Its board also voted on Wednesday to review alternatives that could include asset sales, a merger or selling the entire business, the Wall Street Journal reported.
Bloomberg News reported on Thursday that MF Global was trying to sell the futures business, not the holding company.
Dick Bove, an analyst at Rochdale Securities, said in a note on Wednesday that MF Global must sell off assets as quickly as possible. Bove added that Goldman Sachs Group Inc may be a buyer for all or part of the company.
Goldman declined to comment.
Investment bank Evercore is advising MF Global on its options now, a source familiar with the matter said.