MF Global's aborted fruit salad solution to capital woes

Fri Jan 6, 2012 2:02pm EST
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By Matthew Goldstein

(Reuters) - A few months before MF Global collapsed in bankruptcy, some top executives at the futures firm were talking about a plan code-named "Project Honeydew" as a way of freeing-up badly needed capital and cash.

Reuters has learned that in early September, MF Global reached out to Bank of New York Mellon Corp to inquire whether the big custodial bank would be interested in entering into a joint venture for processing and clearing certain customer transactions, according to four people familiar with the situation.

The idea was to effectively merge MF Global's clearing operation with Bank of New York's and to enable the futures firm to maintain less regulatory capital on its balance sheet, these people say.

The negotiations were preliminary and did not advance far largely because Bank of New York did not seem particularly interested in the idea advanced by MF Global, sources say. By the time MF Global filed for bankruptcy on October 31, any talks with Bank of New York had long ended.

Kevin Heine, a Bank of New York spokesman, said, "We don't comment on market rumor or speculation."

A person close the company says the potential joint venture with Bank of New York was just one of several arrangements that companies were considering, and discussions about broadening their business relationship had been going on for many months.

The fact MF Global officials were looking for a way to reduce its regulatory capital in early fall could indicate that some at the firm were aware it needed to take longer-term measures to bolster its balance sheet.

"It was a great deal for MF Global, but not sure for Bank of New York," said a former MF Global employee familiar with the idea. "I'm not sure what they would get out of it."   Continued...