MF Goes Bankrupt: Deals to Watch (Update 1)

Story updated with MF Global bankruptcy filing.

NEW YORK ( TheStreet) -- MF Global Holdings ( MF) and its Global Finance units have filed for chapter 11 bankruptcy according to a petition filed to the Federal Bankruptcy Court in New York. According to its filing, MF listed over $39 billion in liabilities and $41 billion in assets -- making it the 8th largest bankruptcy in U.S. history according to Bankruptcydata.com. In the companys filing, MF listed as many as fifty thousand creditors.

JPMorgan ( JPM) is its largest creditor with $1.2 billion in exposure according to the petition. Deutsche Bank ( DB) is MF's second largest creditor with over $1 billion in claims spread among three claims.

Shares of JPMorgan fell over 3.5% to $35.38 a share and Deutsche bank fell over 10% to $42.02 a share in early trading. Meanwhile, the Dow Jones Industrial Index fell over 150 points or 1.29% to 12,073.

The bankruptcy petition is a negative development for MF, which this weekend had been reported to have reached a tentative agreement, reached over the weekend, to be sold to Interactive Brokers ( IBKR). What is now unclear is whats next for the firm and its chief executive Jon Corzine. Previously, Corzine had been the governor of New Jersey and co-head of Goldman Sachs ( GS) before joining the firm in March 2010.

After rising as much as 6% in early trading, Interactive Brokers fell back to gains over 2% to $15.59 a share.

According to reports previously about MF's tentative plan to sell itself to Interactive Brokers, the holding company of MF Global would file for bankruptcy protection and Interactive Brokers would then likely make a bid of about $1 billion for its broker dealer trading operation in a court-supervised auction, a person familiar with the matter told the Wall Street Journal. It would be a similar plan to Barclays Capital's ( BCS) purchase of the North American investment banking operations of Lehman Brothers in Sept. 2008 for $1.75 billion, after the firm filed the largest bankruptcy in U.S. history.

Investors dumped shares of MF Global because of worries about the firm's exposure to European government debt -- causing shares to fall 67%. The stock was suspended from trading at $1.20 a share this morning. Last week, the New York -based brokerage disclosed it had lost over $190 million and that its exposure to European sovereign debt was $6.3 billion, a larger risk to the creditworthiness of European governments than bigger and better capitalized firms like Morgan Stanley ( MS).

According to calculations from Reuters, the position was nearly five times MF's net equity of $1.23 billion, meaning that a writedown of even a moderate level could make the firm insolvent. It also meant that as little as a 3% overall writedown in the company's total $41 plus billion in assets would also wipe out its equity.

The risk put the firm in jeopardy. When announcing it had downgraded the firm's credit ratings to junk, Fitch Ratings explained its rating by saying "the firm's increase in principal and, to a lesser extent, proprietary trading activities has elevated the firm's traditional risk profile. These increased risk taking activities have resulted in sizeable concentrated positions relative to the firm's capital base, leaving MF vulnerable to potential credit deterioration and/or significant margin calls."

Earlier Monday, The Federal Reserve, clearinghouses and exchanges like ICE Trust ( ICE), CME Group ( CME) and NYMEX were reported to have halted its ability to trade.

On Monday morning, the Federal Reserve Bank of New York, in a statement, said it informed MF Global "that it has been suspended from conducting new business with the New York Fed. Previously MF had been one of twenty dealers authorized to buy and sell new issues of U.S. government issued securities.

"This suspension will continue until MF Global establishes, to the satisfaction of the New York Fed, that MF Global is fully capable of discharging the responsibilities set out in the New York Fed's policy, "Administration of Relationships with Primary Dealers," or until the New York Fed decides to terminate MF Global's status as a primary dealer."

This morning, the CME Group ( CME) also suspended MF from trading on the Chicago Mercantile Exchange, the world's largest commodities marketplace.

Interactive Brokers' had become the most likely buyer of MF Global operations in some form, after previous rumors surfaced last week that firms such as Goldman Sachs ( GS), State Street ( STT), J.C. Flowers and Australia-based Macquarie would be interested in buying the commodities broker. It also comes as MF has hired banker Evercore Partners ( EVR) and law firms Weil Gotshal and Skadden, Arps, Slate, Meagher & Flom to advise on sale, restructuring or bankruptcy plans. Weil Gotshal advised Lehman Brothers on its sale to Barclays in Sept 2008.

According to reports from The New York Times, sale talks are now dead, citing sources familiar with the situation.

After its Sept. 15th bankruptcy, Barclays was the only bidder for Lehman Brothers' , which included its North American headquarters, investment banking employees technology and nearly $70 billion in the company's broker dealer trading assets, but little of the firm's over $600 billion in assets. After the sale, Barclays booked billions in profit as result of gains in the value of the assets it took on from Lehman's brokerage, which included collateral and margin holdings. The trustee of Lehman Brothers then sued the British banks for as much as $7 billion, calling the transfer of Lehman brokerage assets a 'windfall.' Barclays countersued.

In 2010, James Peck a judge of the U.S. Southern District of New York who had approved the Sept. 2008 sale ruled that Barclays should return $2 billion of margin assets to the Lehman estate. This week the two parties were back in court disputing Peck's ruling, which also forced the Lehman estate to return $1.1 billion to Barclays. On Nov. 4th, Lehman's creditors will vote on a plan to resolve up to $160 billion in bankruptcy claims.

The Lehman sale to Barclays highlights some of the issues that may arise with a similar plan for MF to file bankruptcy at the holding company level and sell its broker-dealer as a going concern to a potential bidder.

Its still to be seen why a Lehman-like sale brokedown and whether legal or financial concerns overruled talks with potential buyers like Interactive Brokers.

Engineering giant Shaw Group ( SHAW) said today it's considering a spin of its energy & chemicals unit according to a statement from the Baton Rouge-Louisiana based company.

The company said in its earnings release for the fourth quarter 2011 that its energy & chemicals unit had received 'multiple written indications of interest from potential acquirers and is exploring options" related to the business.

Shaw also authorized a share buyback program of as much as $500 million and said that within the next two weeks it may tender an offer for as much as $475 million in shares in a Dutch auction.

The energy & chemicals unit of Shaw lost $39 .4 million after tax or 55 cents a share this quarter because of cost increased in a coal power project and an unfavorable legal settlement in its manufacturing segment.

In today's filing, the company said it lost $90.2 million this quarter and $175 million overall for 2011, which equates to $2.18 a share.

Previously, in September the company announced that it was selling a 20% investment in nuclear company Westinghouse back to Toshiba by exercising options. In its announcement of the plan, the company said the sale of the Westinghouse stake to Toshiba would remove $1.7 billion in debt from its balance sheet.

Shareholders of TMX Group, the parent company of the Toronto Stock Exchange have approved a $3.72 billion bid to be bought by Maple group, a consortium of Canadian banks and pension funds. The merger proposal was first submitted in July was a hostile unsolicited bid for the exchange of CAD$48 a share. The consortium included 13 parties including Toronto Dominion ( TD) and Manulife Financial ( MFC).

According to a statement announcing shareholder approval Maple plans will buy up to 80% of TMX shares at C$50 a share in cash and the remaining 20% using its stock. If antitrust concerns make the takeover untenable, the consortium will pay a CAD$39 million fee if the deal doesn't close.

Exchange mergers this year have faced scrutiny by authorities. The Australian government halted a bid by the Singapore Exchange Ltd. for control of the Australia Stock Exchange. Meanwhile Deutsche Boerse has faced increasing scrutiny by the European Commission over antitrust converns in its $7.2 billion bid for NYSE Euronext ( NYX). Both companies have until Nov. 17 to sell assets of build concessions that will alleviate concerns over competition, according to Bloomberg reports. If completed, the merger will create the world's largest exchange.

Late Friday Bloomberg reported that DuPont ( DD) is considering a split of its auto-paint division that may raise $4 billion for the U.S. chemicals making giant. The unit, which sells coating for autos, tractors and playground equipment, is roughly 12% of DuPont's overall $31.5 billion in annual revenue.

In 1999, the Wilmington, Delaware -based firm bolstered its auto paints division with a $1.9 billion acquisition of German painter Herbert's.

In its most recent year ended in 2010, DuPont recorded its best revenue and earnings since 2007, prior to the worst recession since the Great Depression, which felled Chrysler and General Motors ( GM).

-- Written by Antoine Gara in New York