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Troubled brokerage MF Global files for bankruptcy

By news services

MF Global Holdings Ltd., the securities firm run by former New Jersey Governor and Goldman Sachs head Jon Corzine, is seeking bankruptcy protection one week after reporting its biggest-ever quarterly loss.

MF Global shares plunged 66 percent last week. Besides the loss of $186.6 million for the fiscal second quarter, investors were spooked when MF Global's debt was downgraded to junk status. Credit-rating agencies expressed concern about the firm's $6 billion portfolio of European debt.

MF Global appears to be the first major U.S. casualty of Europe's debt crisis, although last week it sought to reassure investors that the investment in European sovereign debt was prudent. It blamed the big loss on weaker-than-expected trading revenue and one-time costs.

Trading in shares of MF Global Holdings Ltd. was halted early Monday. The Wall Street Journal and others reported that Corzine worked over the weekend to find a buyer. A proposed deal with Interactive Brokers Group of Greenwich, Conn., fell through early Monday, the Journal reported.

Here’s more analysis of MF Global’s bankruptcy from CNBC:

"If they don't find a buyer, the only other option would be someone willing to come in and provide enough financing to reorganize the company," said Christopher Ward, a bankruptcy attorney with Polsinelli Shughart PC. "I think that's unlikely, given the market conditions" and the company's debt, he said.

Corzine took over the helm at MF Global early last year. He set out to grow the company into a global investment bank. In addition to futures and commodities trading, MF Global started making bets with the firm's own money, The Journal reported.

MF Global turned a profit just three times in the past 12 quarters. As the European debt crisis threatened to spread, investors and analysts focused on the company's holdings of debt from Belgium, Italy, Spain, Portugal and Ireland.

Last week, he said he expected the firm to "successfully manage these exposures to what we believe will be a positive conclusion in December 2012."

Corzine is also a top fundraiser for President Barack Obama. Corzine has helped raised at least $500,000 for Obama's re-election campaign since April, according to records released by the campaign.

At worst, MF Global's bankruptcy could roil credit markets and make financial companies reluctant to lend to each other. It wouldn't equal the fallout from the failure of Lehman Bros. in 2008 because Lehman was bigger and more intertwined with other companies.

However, banks could be spooked temporarily by concerns about who lost money as a result of MF Global's bad bets. Fears about losses on European debt already have roiled markets for months.

MF Global filed its petition with the U.S. Bankruptcy Court for the Southern District of New York. Including its subsidiaries, MF Global has assets as $41.05 billion and liabilities of $39.68 billion, according to its bankruptcy petition.

Its five biggest unsecured creditors are banks assigned to administer bonds issued by MF Global. Their job is to collect MF Global's payments and distribute them to bond holders. The banks, which include units of JPMorgan Chase & Co. and Deutsche Bank, do not necessarily own MF Global's bonds themselves, said Ward, the bankruptcy attorney.

For example, JPMorgan manages $1.2 billion of debt issued by MF Global, but holds only about $80 million of that debt on its books, according to a bank official. The rest of the bonds were sold to a large group of investors, said the person, who spoke on condition of anonymity to discuss sensitive financial details.

The company's biggest stockholders are investment managers, insurers and hedge funds. Among them: Fidelity; Guardian Life Insurance Co.; hedge fund Fine Capital Partners, LP and TIAA-CREF.

The case originally was assigned to Judge Stuart Bernstein. It was reassigned to Judge Martin Glenn.

The Associated Press contributed to this report.