A week before MF Global Holdings Ltd. collapsed, its chief financial officer told Standard & Poor’s in an e-mail that the futures broker had “never been stronger.”
S&P provided the House Financial Services Subcommittee on Oversight and Investigations with an excerpt of the e-mail from MF Global CFO Henri Steenkamp. S&P also informed the panel that Jon Corzine, then MF Global’s chief executive officer, met with its analysts on Oct. 20 to reassure them that his $6.3 billion bet on European sovereign debt was no threat to the firm, according to a Jan. 17 letter obtained by Bloomberg News.
U.S. lawmakers will turn their attention to the role of the ratings companies in the failure of MF Global at a Feb. 2 hearing after summoning Corzine, the former governor of New Jersey and Goldman Sachs Group Inc. co-chairman, to two hearings in December. S&P ranked MF Global as investment grade until its failure, while Moody’s downgraded it to junk status four days earlier.
“MF Global is in its strongest position ever,” Steenkamp told S&P on Oct. 24, according to the letter to Representative Randy Neugebauer, a Texas Republican, from Craig Parmelee, a managing director at S&P in New York.
No ‘Police’ Role
MF Global filed for the eighth-biggest bankruptcy in U.S. history on Oct. 31 after receiving margin calls and other demands for money amid escalating concern that the brokerage wouldn’t have enough capital to cover its European bets. S&P said in the letter that it relied on MF Global’s public filings for information on the positions.
“S&P does not purport to audit the issuers it rates and does not undertake to police issuers for fraudulent activity or misconduct,” Parmelee wrote.
Moody’s analysts believed that MF Global was increasing its trading activity “for the primary purpose of facilitating customer transactions,” Steven Ross, a partner at Akin Gump Strauss Hauer & Feld LLP who represents the firm, wrote to Neugebauer in a separate letter dated Jan. 17. The brokerage’s presentations before Oct. 21 “did not describe or reflect” the European positions, Ross wrote.
Diana DeSocio, a spokeswoman for MF Global, declined to comment.
