MF Global Diversifies As Volume Slump Leads to 4Q Loss
May 21 2009 - 7:30AM
Dow Jones News
MF Global Ltd. (MF) plans to leverage rising Treasury bond
issuance and the regulator-driven push to clear more derivatives
amid weaker demand for its traditional brokerage services.
Bernard Dan, chief executive, outlined the diversification as
the company reported a larger-than-expected fiscal fourth quarter
loss, weighed by a drop in commissions and special charges.
In an interview, Dan said the retail and institutional brokerage
aimed to win market share in an interest-rate swap derivatives
market that regulators are demanding use central counterparty
clearing to reduce risk and improve transparency.
It is also applying for dealer status to take advantage of the
rise in Treasury bond issuance to fund the U.S. stimulus package,
filling part of a gap left by the disappearance of Bear Stearns and
Lehman Brothers.
MF Global reported an adjusted net loss of $17.4 million for the
three months to March 31 compared with a profit of $49 million a
year earlier. The loss per share of 5 cents compared with a
year-ago profit of 39 cents. Analysts had forecast a profit of 12
cents for the quarter.
The company was weighed by the slide in commissions as
exchange-traded volume fell to 386.2 million contracts from 589.1
million a year ago. Revenue for the quarter fell to $256.7 million
from $407.9 million a year earlier.
The strategic moves mark a counter-punch against banks that had
received U.S. government support, which Dan argued gave them an
implicit federal guarantee and made them more attractive to
investors.
MF Global's own client funds have been hit by market volatility
and its slow recovery from a rogue trading scandal last year, which
raised questions over its risk management.
Dan said the plans outlined by the U.S. last week to tighten
oversight of the over-the-counter derivatives market provided an
opportunity.
"All of that, to us, is potentially very beneficial," he told
Dow Jones Newswires. "We're going to be positioned to take some
market share."
The company conducted the first transaction through the
International Derivatives Clearing Group, a subsidiary of Nasdaq
OMX Group Inc. (NDAQ) set up to clear interest-rate swaps. Dan said
MF Global is eyeing similar platforms as more OTC contracts are
migrated to a cleared environment.
Dan also outlined a push into high-grade corporate debt markets,
hiring 22 staff in the last quarter. The effort to secure dealer
status would let the company participate in Treasury debt auctions.
"The Fed's preference, with all the issuance planned, is to have
more dealers," Dan said.
The Chicago Board Options Exchange's Vix volatility index this
week hit an eight-month low, which Dan said should coax more
professional and retail traders back into the markets.
While attempting to shake off some of its past, MF Global also
revealed it is seeking a $30 million receivable owed by former
parent Man Group PLC.
Man, which remains MF's largest shareholder after its 2007
initial public offering, is seeking arbitration over the claim.
MF Global shares closed 5.2% lower Wednesday at $5.43.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com
(Kerry E. Grace and Doug Cameron contributed to this
article.)