> > Bull or Bear? Vote in Our Poll The company has a market cap of $197 million but took on a risky $6 billion position in European debt. Not German sovereign debt, but the debt of troubled countries like Italy, Spain, Portugal and Ireland. This exposure caused FINRA (the Financial Industry Regulatory Authority) to require MF Global to raise more capital, and JPMorgan Chase ( JPM) extended the company $300 million in credit in September. So in three months, MF Global sold more than $600 million worth of debt and took out another $300 million line of credit. Almost $1 billion in three months. Lionel Mellul, Co-founder and Partner of Momentum Trading Partners says, "They took too big of a position of risk, $6 billion vs. their capital. That's the problem with poor risk management. They did not stop a losing position." One employee that recently left the firm says that even though he was removed from the trading, everyone at the firm knew that the risk was rising. "It felt like every day we went to work, we wondered did they put the chips on black or red that day," he said. "It was very disconcerting." So just as MF Global is dealing with the dropping value of debt it purchased, so are the holders of MF Global debt. The bonds trade in fairly small quantities, but as word began to spread that MF Global was in trouble, the bonds began trading in the millions. The value dropped almost 60% at one point as bondholders scrambled to get something for their trouble. Word had gotten out that some houses were told to quit trading with MF Global. That set off a chain reaction because no one wants to be the last guy out the door. Everything MF Global said to try to reassure the market sounded ominously like what Bear Stearns and Lehman Brothers were saying before they went down.
The firm's stock has plummeted, with shares closing at $1.20 on Friday after going as low as 99 cents. In addition to reportedly hiring bankruptcy and restructuring lawyers, MF Global's reportedly board met over the weekend to discuss the company's options, including a sale . The word on Wall Street was that by Monday morning MF Global would be done. All that needs to be decided is the price. As with Bear and Lehman, don't expect to see a premium paid for the firm.