Refco: No longer a question of if but when for bankruptcy filing
As Reuters inidcates, "Refco Advisors Meet to Decide Fate of Company" with a sub-title of "Embattled commodities brokerage could file for bankruptcy before Monday." As the article indicates the focus of efforts are to save Refco's main futures and commodities trading operation. Refco's broker-dealer and prime brokerage units were supposedly shut down earlier this week.
TCM was not aware that these subsidiaries actually had been closed, but rather that the unregulated Refco Capital Markets subsidiary had prevented customer withdrawls for fifteen days. The Refco Capital Markets subsidiary is significant for two reasons: 1) it is the subsidiary of Refco that did the transactions with the ex-chariman and CEO around each quarter end, and 2) it is the subsidiary through which third-parties executed over-the-counter derivative transactions. Hedge funds have been very active in the last several quarters in the energy and raw commodity markets, particularly as they sought to take on longer term-exposure through so-called Total Return swaps.
One just has to think about the news of the last six weeks and how Hurricanes Katrina and Rita effected the energy markets. Weren't the biggest speculators in that time period of the energy markets the hedge funds? How many of those hedge funds reduced their exposure to the biggest commodity trading firm before this past Monday October 10th? TCM's suspicion is that few hedge funds unwound their energy positions or cut their exposure to Refco, and that there are more significant events yet to be publicized in the Refco fraud story. Word to the wise ==> Keep a keen eye on the rumors about hedge fund liquidity problems!!!
Selected reference material on the unfolding Refco story:
- Mover Mike's blog entry "A Recap of the Week's Events At Refco" summarizing many Refco story details.
- Reuters story entitled "Refco Advisors Meet to Decide Fate of Company."
- Guardian entitled "World's hedge funds face crisis as Refco suspends trading" with sub-titles of "Leading global broker admits 'liquidity problem'" and "Billions of pounds could be tied up in frozen deals."
- The Financial Times weighs in with this article entitled "Hedge Fund Lessons."
- Telegraph article on "Refco's overseas businesses to file for bankrupty protection"
- Tne New York Times weighed in earlier on October 15th with the story "The Fall of Refco Is Providing a Test for Wall Street."