2011 November

MF Global Files Bankruptcy And Under Investigation

MF Global Holdings Ltd. filed for bankruptcy protection on Monday following some bad decisions on euro zone debt. MF Global’s meltdown in less than week is the biggest U.S. casualty in the European debt crisis. The filing of bankruptcy by MF Global makes it the seventh largest bankruptcy filing in history. It has been referred to as a “mini” Goldman delving into risky trades involving Italy, Portugal, and Spain.

Shares of MF Global plunged last week as its credit ratings were cut to junk. Bankruptcy filing for Chapter 11 came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier on Monday.

It’s being reported that some of its customer accounts that are supposed to be segregated and protected from the rest of the business had suffered what regulators described as “possible deficiencies.” On Monday, MF Global informed the SEC. “Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm,” the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission said in a joint statement.

The discovery that money could not be located may reflect sloppy internal controls at MF Global. It is still unclear where the money went. As much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday. Additional funds are expected to come in over the next few days. Analysts are worried the investigation, which is in its earliest stages, may uncover something more intentional and troubling.

The investigation threatens to tarnish the reputation of Jon S. Corzine, the former New Jersey Governor and Goldman Sachs chief who oversaw MF Global’s demise.

Trading of MF Global shares have been halted.

China Reports Slowdown In Manufacturing

China’s official purchasing index or PMI fell to 50.4 in October. The PMI wa 51.2 in September. China’s National Bureau of Statistics blamed the the drop on weakened U.S. and European economies. A private-sector PMI painted a different picture, saying it rose in October to 51.0, up from 49.9 in September.

With these two PMI’s reporting, analysts believe Chin’s interest rates will remain the same as Beijing balances a need to tackle inflation with concerns that growth is slowing down.

“All these signs may give Beijing good reason to adopt kind of selective easing in the monetary policy in the coming months,” Tang Jianwei, an economist at Bank of Communications in Shanghai, said.

“We expect the central bank may opt for net injection in the money market operations and may loosen some bank loan curbs in the months ahead. There is also a chance of cutting the reserve requirement ratio for banks in the fourth quarter,” Tang said.

Prime Minister Wen Jiabao has maintained that tackling inflation is a priority for the government, but he has said there will be a fine line to walk if growth slows.

The official PMI recorded falls across key component parts with new orders, which make up 30% of the index, slipping to 50.5 from 51.3 with production easing to 52.3 from 52.7.
New export orders dropped to 48.6 from 50.9.

Analysts are worried that a slowdown in China’s manufacturing activity means Asia is not safe from the explosive mess in the euro zone.

Greek Referendum Call Angers Germany

Greek Prime MInister George Papandreou shocked European politicians by calling a referendum on Greece’s bailout. The call hammered financial markets. European leaders are furious because not only would this affect the fate of Greece, but it puts forth dire consequences for the entire European Union.

“We trust citizens, we believe in their judgment, we believe in their decision,” he told Socialist party deputies. “In a few weeks the (EU) agreement will be a new loan contract… we must spell out if we are accepting it or if we are rejecting it.”

Financial markets which had rebounded somewhat on the news from the EU last week concerning Greece’s bailout were hammered. The euro slid as well. “The risk is that a no from the Greeks will completely derail the rescue efforts,” a Paris-based share trader said. “We can kiss the year-end rally goodbye.”

European stocks were down close to 3% and MSCI’s all-country world stock index shed 1.7%, due not only to the possibility of a disorderly Greek default but chaos surrounding the euro zone’s attempts to stop the debt crisis spreading to more significant economies such as Italy.
In foreign exchange markets, the euro fell more than 1% versus the dollar and yen. Investors scurried to cut their exposure to the common currency.

The “Greek Referendum” is a real curve ball as no one saw it coming. The Germans are furious because now it is back to before “square one”. If Greece votes no on the bailout, it will surely through the euro zone into a political crisis with consequences even greater than a default from Greece.

“The situation is so tight that basically it would be a vote over their euro membership,” Finland’s Europe Minister Alexander Stubb told broadcaster MTV3. Greek Finance Minister Evangelos Venizelos also warned citizens that euro zone membership was at stake. “It’s crunch time,” he told lawmakers on Monday. “Citizens will have to answer the question: are we for Europe, the euro zone and the euro?” Analysts say the last opinion poll showed most Greeks against the bailout and the prospect of more austerity measures being imposed upon them.

Greece is due to receive an 8 billion-euro tranche in mid-November. It is believed that money would then run out in January, around the time of the referendum, leaving the Greek government with no funds if there is a “no” vote.

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