MF Global's bankruptcy may be the biggest failure of a U.S. financial firm since the collapse of Lehman Brothers in 2008, but its demise has not been nearly as catastrophic on financial markets -- at least not yet.
MF Global's decision to file for bankruptcy protection Monday triggered a frenzy of activity on the Chicago Mercantile Exchange, as firms whose trades are cleared by the broker-dealer were unable to execute orders, according to the Financial Times. But unlike the infamous Lehman moment, there were limited signs of strains on liquidity and no major disruption in the funding markets. Sure, the Dow tumbled Monday and is falling again today, but this reaction is tame compared to the panic after Lehman's fall and AIG's near collapse.
Nevertheless, MF Global's (MF) downfall is Wall Street's first casualty from the ongoing European debt crisis, so tensions are understandably high. Major rating agencies thought the firm had taken on too much risk with its $6.3 billion bet on European sovereign debt. And in a series of credit downgrades, Moody's (MCO), Standard & Poor's and Fitch downgraded the firm to "junk" status.
Most of us on Main Street won't feel an immediate impact from MF Global's demise, but needless to say, several stakeholders won't be walking away unscathed:
Preferred stockholders
Private equity investor J. Christopher Flowers may have placed former New Jersey Governor Jon Corzine as MF Global's top executive (they were both formerly executives at Goldman Sachs (GS)), but the financier who was a significant investor of the bankrupt firm through his firm J.C. Flowers & Co. may see millions in losses.
It has been widely reported that the private equity firm paid $87.4 million three years ago for MF Global preferred stock. Over the last three years, the dividends paid handsomely – it reportedly yielded J.C. Flowers $39.6 million. But with the collapse of MF Global, the fund is expected to mark the investment down to nothing and suffer a net loss of $47.8 million.
Common shareholders
And of course, the firm's biggest common shareholders could lose millions. Here's a list of some of the bigger ones and their respective stakes in the firm according to recent filings:
Pyramis Global Advisors LLC, owning 8.44% common shares; RS Investments, 7.81% (Update: An RS Investments spokeswoman told Fortune the company sold its shares of MF Global on October 26 ahead of the firm's file for bankruptcy protection); Fine Capital Partners LP, 7.37%; Cadian Capital Management LLC, 6.17%; TIAA-CREF, 5.77%; Advisory Research Inc., 5.54%; Dimensional Fund Advisors LP, 5.41%; Rydex Security Global Investors LLC, 5.13%.
Unsecured creditors
