MF Global Meltdown Shows Real European Threat
MF Global saw its shares lose 66% in four days last week, leading to its bankruptcy filing Monday. The cause was a $6 billion bet on European debt that had barely lost money. Still, the markets, upon finding out about the bet, freaked out, creating an actual crisis at MF Global simply because they were worried about a potential one.
There is a lesson here. When addressing the threat from Europe, U.S. institutions like Bank of America (BAC), Citigroup (C), Morgan Stanley (MS)and JPMorgan Chase (JPM) talk about their "exposure" as if it were a fingernail or--at worse--a finger--that could be amputated without material risk to the corpus that is the larger corporation.
But as the case of MF Global demonstrates, exposure takes many forms and has a stubborn way of working its way into the bloodstream when you're talking about, say, an entire continent--especially in our days of globalization. When JPMorgan discussed its exposure to Europe on its most recent analyst call, did it count MF Global? One suspects not, and yet it turns out to be MF Global's largest creditor, with $1.2 billion owed to it.Following the market's realization of JPMorgan's $1.2 billion in exposure to MF Global, various analysts were quick to say that it isn't really $1.2 billion, because surely there are hedges in place. Fine. But we're talking about one company, and the fallout from that company's collapse has yet to be fully assessed. When it's all of Europe headed for a restructuring--minus, perhaps, Germany and a couple other countries--rest assured, the resulting mayhem will have grave consequences across the Atlantic and elsewhere--whether you're JPMorgan, Wells Fargo (WFC), or the local credit union. -- Written by Dan Freed in New York.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV