While you were sleeping: MF falls over, EU doubts return

Tuesday 1st November 2011 2 Comments

Thursday’s party is over and investors seemed to wake up with a hangover that left them feeling queasy about the outlook for the European debt crisis.

Today began with the downfall of MF Global Holdings, the futures broker led by CEO Jon Corzine. The company’s big bets on European sovereign debt led it to filing for Chapter 11 bankruptcy protection. MF shares were halted.

Separately, the European Central Bank stepped in to buy Italian and Spanish bonds as yield on the debt of the troubled nations soared amid renewed concern that the euro zone’s economy was stalling and after Chinese officials sought to dampen expectations on how much China was prepared to invest in Europe.

As a result, last week’s euphoria about Europe’s progress toward fixing its fiscal disaster gave way to impatience.

“There are lots of missing details and it’s still frustrating slow,” Kevin Gardiner, the global head of investment strategy at Barclays’ wealth unit, told Bloomberg News.

In Europe, the Stoxx 600 Index closed with a 2.2 percent drop on the day, though still posted a gain for the month of nearly 8 percent.

In afternoon trading in New York, the Dow Jones Industrial Average fell 1.38 percent, the Standard & Poor's 500 Index declined 1.44 percent and the Nasdaq Composite Index shed 1.18 percent. Even with today’s losses, the S&P 500 was still up 12 percent for the month, heading for its largest monthly percentage gain in more than two decades.

Morgan Stanley and Citigroup each tumbled more than 5 percent, after the biggest weekly advance in more than a year for financial shares in the S&P 500.

In Japan, the government intervened to stem the rise of its currency and safeguard the appeal of its exports, sending the US currency to the strongest level in three months.

The greenback gained 1.34 percent against a basket of its major counterparts.

In October, global investors slashed equity holdings to the second lowest level in 12 months, Reuters polls showed on Monday.

Reuters surveys of 56 leading investment houses in the US, Japan, Europe ex UK and Britain showed the average stock holding in a balanced portfolio was 49.5 percent, down from 50.5 percent in September.

Bonds rose to 35.9 percent from 34.6 percent while cash slipped to 5.9 percent, still the second-highest level of the past 12 months after September's 6.3 percent, according to the poll.

There is reason for optimism as US corporate profits are by and large exceeding expectations. American companies are beating Wall Street profit estimates for the 11th straight quarter, enough to revive a bull market that analysts say will eclipse any rally in the past 12 years, according to Bloomberg.

A total of 222 out of 298 Standard & Poor’s 500 Index companies that reported results since October 11 have surpassed forecasts for the third quarter, according to data compiled by Bloomberg.

“This is looking like it’s going to be a really decent quarter,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co, told Bloomberg. “Valuations are very, very low relative to history, and you don’t have to make heroic assumptions on multiples to get reasonable returns.”

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

On 1 November 2011 at 10:24 am Siena said:

MF Global Reports Second Fiscal Quarter 2012 Results. Their Second Quarter Highlights Market volatility impacted upon their net revenue. Revenue, net of interest and transaction-based expenses (net revenue), was $205.9 million for the second quarter 2012, compared with $240.3 million for the same period last year. Their compensation ratio was higher on lower net revenues. Employee compensation and benefits (excluding non-recurring IPO awards) as a percentage of net revenue was 64.9 percent for the second quarter, compared with 58.0 percent for the same period last year. Adjusted employee compensation (excluding non-recurring IPO awards) as a percentage of net revenue was 62.3 percent for the second quarter, compared with 56.3 percent for the same period last year. Certain charges impact GAAP results. GAAP net loss applicable to common shareholders was $191.6 million, or $1.16 per basic and diluted share for the second quarter, compared with a loss of $94.3 million, or $0.59 per basic and diluted share for the same period last year. Strengthened capital and liquidity position. As of September 30, 2011, the company had over $3.7 billion in available liquidity, including $1.3 billion in available committed revolving credit facilities and $2.5 billion in total capital. Reflecting on the 'Stressed Markets' in the quarter, it appears that MF Global Holdings deliberately chose to reduce their overall market exposure in most principal trading activities and they focused on preserving capital and liquidity. As of September 30, 2011, MF Global Holdings maintained a net long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity (repo-to-maturity), including Belgium, Italy, Spain, Portugal and Ireland. From what else I have read, MF Global Holdings remained confident that the resources and expertise they had would enable them to continue to successfully manage these exposures to what they believed would bring a positive conclusion in December 2012.

On 1 November 2011 at 1:44 pm Siena said:

Kiaora. I have just received news from New York that MF Global Hodings is Under Investigation for Missing Money. Federal regulators have discovered that hundreds of millions of dollars in customer money have gone missing from MF Global in recent days, prompting an investigation into the company’s operations as it filed for bankruptcy on Monday, according to several people briefed on the matter. The revelation of the missing money scuttled an 11th hour deal for MF Global to sell a major part of itself to a rival brokerage firm. MF Global, the powerhouse commodities brokerage run by Jon S. Corzine, had staked its survival on completing the deal. Now, the investigation threatens to tarnish the reputation of Mr. Corzine, the former New Jersey Governor and Goldman Sachs chief who oversaw MF Global’s demise, making it the first American victim of Europe’s debt crisis. What began as nearly $1 billion missing had dropped to less than $700 million by late Monday. It is unclear where the money went, and some money is expected to trickle in over the coming days as the firm sorts through the bankruptcy process. Regulators are examining whether MF Global Holdings diverted some customer money to support its own trades as the firm teetered on the brink of collapse. If that was the case, it could violate a fundamental tenet of Wall Street regulation: Customers’ money must be kept separate from company money. Such a finding would move the discussion from sloppy internal controls at MF Global to something more troubling. While the investigation is in its early days, it raises the specter that regulators could sanction the firm or the employees responsible. As yet, MF Global Holdings and Mr. Corzine have not been accused of any wrongdoing.