Shares of MF Global Holdings Ltd. plunged more than 40 percent Tuesday afternoon after the broker reported its biggest-ever quarterly loss as a public company because volatile markets forced it to pull back on trading.
That raises questions about the plans of CEO Jon Corzine, former Goldman Sachs CEO and the former governor of New Jersey, for building MF Global into a bigger Wall Street player. Tough trading conditions are making that more difficult.
MF Global lost $186.6 million, or $1.16 per share, in the second fiscal quarter, far wider than the loss of $38.8 million, or 59 cents per share, in the same period a year ago. Weaker-than-expected trading revenues were partly to blame, though the company also took charges related to deferred tax assets, restructuring costs and paying down debt early.
Stripping out those charges, MF Global posted a loss of 9 cents per share, which still missed analysts' expectations for a 4-cent gain.
Revenue, after stripping out interest costs, sales commissions and other fees, fell 14 percent to $205.9 million. That was far short of analysts' expectations for about $302 million. The company blamed the lower revenue on its decision to scale back on its own trading activities.
"Reflecting the stressed markets in the quarter, we deliberately chose to reduce overall market exposure in most principal trading activities and focused on preserving capital and liquidity," Corzine said in a statement. Revenue in the principal trading group fell to $12 million from about $45 million.
MF Global, a broker-dealer in futures, commodities, foreign exchange and other markets, went public in 2007 and has been led since last year by Corzine. He has ramped up hiring to try to transform the broker into a global investment bank that manages money for customers and provides capital services for companies.
But in the past 12 quarters, the company has turned a profit three times, and shares are down nearly 75 percent this year.
News of the quarterly loss came a day after Moody's cut MF Global's credit rating over concerns about its exposure to European debt. Moody's analyst Al Bush said that he was increasingly concerned with MF Global's risk management strategies as it underwent a "substantial re-engineering of the firm." The analyst cited the company's increased exposure to European sovereign debt and its need to inject capital into its broker-dealer subsidiary to bridge a regulatory capital shortfall. Moody's cut MF Global's credit rating to its lowest investment-grade level.
"If market volatility stays elevated, we question how the firm is going to achieve the earnings necessary to avoid a downgrade of its debt to junk status, which in turn could materially impact its ability to act as a counterparty as well as raise MF's cost of debt," Raymond James analyst Patrick O'Shaughnessy wrote in a note to clients.
MF Global on Tuesday tried to address concerns about its exposure to indebted European countries including Belgium, Italy, Spain, Portugal and Ireland. Corzine said the company actively manages its investments.
"We remain confident that we have the resources and expertise to continue to successfully manage these exposures to what we believe will be a positive conclusion in December 2012," Corzine added.
Shares fell $1.69, or 48 percent, to close at $1.86 Tuesday. The stock fell to three-year low of $1.75 earlier in the day.