MF Global set to face $1.2bn fund shortfall

City A.M. Reporter
THE APPARENT shortfall of customer funds at MF Global Holdings’ broker-dealer unit may be around $1.2bn (£1.04bn), about double the initial estimate from regulators, the trustee liquidating the company said.

The amount of money MF Global should have segregated for customers may be short by “$1.2bn or more”, trustee James Giddens said in a statement. He added that the figure could still change.

Giddens also said he currently controls about $1.6bn of the brokerage’s funds that he can use to pay back customers whose accounts were frozen when MF Global went bankrupt on 31 October. His plans to pay back 60 per cent of customer funds by early December would nearly exhaust that amount.

The announcement was Giddens’ first public statement on the amount of money under his control and his estimate of the size of the shortfall, which regulators initially had said was about $600m.

MF Global was run by former Goldman Sachs chief and New Jersey governor Jon Corzine before its Chapter 11 bankruptcy filing. The bankruptcy came after the New York-based company revealed that it had made a $6.3bn bet on European sovereign debt. Corzine resigned on 4 November.

Customers have criticised Giddens’ efforts, calling for quicker access to a higher percentage of their accounts. The trustee has argued that a piecemeal approach is necessary until he can peg the exact size of the shortfall.

On Sunday, it was reported that, based on initial reports of what was supposed to be segregated for customers, the trustee appeared to be keeping about $3bn on hand to cover what was then thought to be a roughly $600m shortfall.

Customers had been clamouring for more specifics, complaining that their money was still frozen unnecessarily.

“Restoring 60 per cent of what is in segregated customer account... would require approximately $1.3 to $1.6bn to implement,” Giddens said.

The trustee had previously transferred more than $2bn to other brokers, giving most customers access to a portion of their funds.