Refco and Financial Derivatives Market Meltdown.

There seems to be massive confusion both here and in the press in differentiating between NYSE listed RFX and the liability of it's subsidiaries as they effect the derivatives marketplace.

The financial health of RFX is at the holding company level and was caused by the apparent misplacement/misstatement of losses on it's balance sheets. Fraud may be too much of an overstatement, as of now. What ever the case, Refco was, except in the rarest of exceptions, a broker and not a dealer. Therefore counter party risk with Refco is of minimal concern.

Even on transactions involving Refco as a principle, that is Refco trading for their own account, the counter party risk is insubstantial. Why? Because the losses don't effect Refco LLC, they effect RFX. There's been no hint that as a trading firm Refco lacks sufficient capital to continue operations. Of course that could change, tip of the iceberg ect.....

Bottom line: Refco is a HUGE broker/prop firm ect. They are not a massive OTC derivatives player, they are certainly not a money center bank, they are not even a traditional stock brokerage firm where customer funds beyond SPIC thresholds are at risk.

If ET had been around when EF Hutton, Drexel or Goodbody had folded you'd see guys on here having coronaries. Hell I'm not even sure yet if Refco will be out of business.
 
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Pluqqer: South America, peruse previous threads started by areyoukidding. Criticizing your new thread is the pot calling the kettle black. At least your thread was interesting.


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SouthAmerica: I did not know that areyoukidding? Had started a thread on the Refco subject.

I did not check the other treads before I made my posting.

I did post that information in response to an email that I received yesterday from a member of this board asking me if I had written anything on this subject.

That posting was my response to that person.

About 3 weeks ago I decided to send an email to Carol Loomis at Fortune magazine asking her if she could write an article and give us an update on the current state of the global financial derivatives market.

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Southamerica, I was not criticizing your thread or posts. I was poking fun at areyoukidding who has started countless threads discussing which way the wind was blowing that day.

I would be interested in any other commentary regarding the derivatives market as it would seem to be a legitimate concern at this point.
 
don't worry. if ya can survive 911, then u can handle refco's meltdown. afterall, its only money. i mean u dont need it to enter heaven do u.
 
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Pabst: Even on transactions involving Refco as a principle, that is Refco trading for their own account, the counter party risk is insubstantial. Why? Because the losses don't effect Refco LLC, they effect RFX. There's been no hint that as a trading firm Refco lacks sufficient capital to continue operations. Of course that could change, tip of the iceberg ect.....


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SouthAmerica: On Sunday October 16, 2005 The New York Times published an article by Gretchen Morgensen: “If Refco Isn’t Scary, What Is?


On this article she also mentioned the capital position of other major players on that market, and if I remember correctly she mentioned that another major firm (I don’t remember the name) had stock equity of 3.5 percent of total assets, as compared with Refco that had only .3 percent of total assets.

Basically, she was saying that it is very risky doing business with Refco, and with a stock holder’s equity so low – Refco might be put out of business because of these losses.

REMINDER: Nick Leeson's self-marked portfolio brought down Barings Bank of England in a now infamous 1995 derivatives scandal.


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SA: I'm not commenting on Refco's health per se'.

Clearly equity and debt holders of RFX will suffer dilution and/or complete loss.

The LARGER point I'm making is that the failure of Refco (if that's how this plays out) will not have systematic repercussions on the derivatives landscape because Refco is not a particularly large counter party in OTC transactions.

For any one to suggest that Refco could be a domino in a larger series of related failures is like saying that if I default on my car loan I'm going to bring GM crashing into bankruptcy with me. Nada.
 
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Associated Press
”Refco in Talks Aimed at Buyout”
Monday October 17, 4:51 pm ET
By Michael J. Martinez, AP Business Writer

Troubled Commodities Broker Refco in Talks Aimed at Buyout; Would-Be Buyers Led by J.C. Flowers

NEW YORK (AP) -- Troubled commodities broker Refco Inc. could be essentially scrapped for its parts, with talks Monday aimed at selling the company's core futures brokerage business to a group of private investors.

The consortium of would-be buyers are led by private buyout firm J.C. Flowers & Co. LLC, which specializes in taking distressed financial companies and either turning them around or selling the pieces to other companies. Refco and Flowers are in "advanced negotiations." A Refco spokeswoman had no other comment, while a Flowers spokesman could not be reached for comment.

"There is a network of potential buyers for certain pieces of this company," said Denise Valentine, senior analyst at financial consulting group Celent. "It could be interesting to see how parts of Refco get morphed into other firms."

The talks center on Refco LLC, the subsidiary that houses the nation's largest independent commodities brokerage and one of the few units still relatively untouched by the $545 million accounting scandal that erupted last week and resulted in the arrest of former Chief Executive Phillip Bennett on charges of securities fraud.

The situation at Refco, which just went public in an August stock offering, has deteriorated quickly following the disclosure last Monday that Bennett hid a $430 million debt from the company's books, a figure that prosecutors said was as high as $545 million at one point. Bennett was placed on leave after repaying the company $430 million plus interest.

The company last week froze customer accounts in its Refco Capital Markets offshore broker subsidiary until next week, and said Thursday it would liquidate its Refco Securities LLC subsidiary, which trades stocks, bonds and credit products.

While the company has refused to comment beyond its terse, now-daily press releases, the subsidiary moves speak to an exodus of customers from all parts of Refco, analysts said, leading to a loss of assets and revenue potentially far greater than that caused by Bennett's alleged misconduct.

For Refco, J.C. Flowers & Co. is likely less a white knight and more a repo man. The company, formed in 2000 by former Goldman Sachs Group Inc. investment banker Christopher Flowers, has revived the fortunes of some companies, most notably Japan's Shinsei Bank Ltd. Flowers also led the group that purchased Dutch bank NIB Capital NV for $2.5 billion in August, and last month agreed to buy the wholesale unit of insurer Marsh & McClennan Co.

In Refco's case, however, customers are unlikely to return to the company. Commodities traders are likely to have already moved their accounts to other brokerages.

"I think, in this case, the parts of Refco are greater than the whole," Valentine said. "There's been too much damage to turn it around and revive it. And there's plenty of interest."

Commodities and futures trading has become increasingly attractive to major Wall Street firms who have faced a sluggish stock market and low bond yields in the past year. Commodities such as oil, metals and agricultural products have done very well. Merrill Lynch & Co. launched its commodities trading this year, and it's considered a key piece of most investment and banking companies' growth strategies.

Refco's stock remained halted Monday on the New York Stock Exchange as regulators there determine whether the company has provided enough information to investors to resume trading, or should instead be delisted. The company's bonds, which dropped precipitously last week, rallied on word of the Flowers buyout talks.

It's unclear whether Refco's other subsidiaries would be included in buyout talks, or if they would simply be left to fend for themselves and likely file for bankruptcy.

There's also no telling how much Refco shareholders might see in any potential buyout scenario. The stock plummeted more than 70 percent since Oct. 7, the last day of trading prior to the company's first disclosures. It's unlikely investors will recover the total value of their investment. However, if pieces of Refco are bought by a more established public company, that could be better for Refco shareholders in the long run.

"Just as an example, what if Refco was bought up by Citigroup?" Valentine said. "I think people would be quite happy trading in shares of Refco for Citigroup."

Refco noted Monday that it has hired the services of Greenhill & Co., another investment bank, in its talks with Flowers. Refco had hired Goldman Sachs, one of its underwriters in its August initial public offering, as its financial adviser during the crisis, but hired Greenhill to avoid any conflict of interest due to Flowers' history as a Goldman employee.


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Associated Press
”Commodities Broker Refco Files Chapter 11”
Tuesday October 18, 2005 - 10:03 am ET
By Michael J. Martinez, AP Business Writer
Troubled Commodities Broker Refco Inc. Files for Chapter 11 Bankruptcy Protection

NEW YORK (AP) -- Troubled commodities broker Refco Inc. filed for Chapter 11 bankruptcy protection and said it had reached a preliminary deal to sell its core futures brokerage business to a group of private investors for $768 million.

The consortium of would-be buyers for Refco LLC is led by private buyout firm J.C. Flowers & Co. LLC, which specializes in taking distressed financial companies and either turning them around or selling the pieces to other companies.

As part of the agreement, Refco said Monday it will have the option to retain up to 20 percent of the equity value of the entities being sold.

The New York Stock Exchange said Friday that Refco's stock will be delisted as a result of the bankruptcy filing. Shares of Refco, which went public in August, lost more than 70 percent of their value last week before the Big Board suspended trading on Thursday. The company said Mark Winkelman will serve as chairman of Refco LLC.

Winkelman was formerly head of J. Aron & Co. and co-head of Wall Street investment bank Goldman Sachs Group Inc.'s fixed income division. Jacob Goldfield will serve as vice chairman.

The Flowers-led consortium includes The Enstar Group, Inc., Silver Point Capital, MatlinPatterson Global Advisers LLC, and Texas Pacific Group. Refco said it expects definitive agreements to be reached soon.

The bankruptcy filing, made late Monday, does not cover Refco's regulated subsidiaries -- Refco LLC, Refco Overseas Ltd. and Refco Singapore Ltd, and the registered broker dealer Refco Securities LLC.

The bankruptcy and brokerage sale capped a week of stunning disintegration for Refco, which disclosed Oct. 10 that its former CEO, Phillip R. Bennett, concealed a $430 million debt from the company's books. Bennett was arrested and charged with securities fraud after repaying the company that amount with interest.

Authorities said the hidden debt was as high as $545 million at one point.
The company last week froze customer accounts in its Refco Capital Markets offshore broker subsidiary until next week, and said Thursday it would liquidate its Refco Securities LLC subsidiary, which trades stocks, bonds and credit products.

While the company has refused to comment beyond its press releases, the subsidiary moves speak to an exodus of customers from all parts of Refco, analysts said, leading to a loss of assets and revenue potentially far greater than that caused by Bennett's alleged misconduct.

"I think, in this case, the parts of Refco are greater than the whole," said Denise Valentine, senior analyst at financial consulting group Celent. "There's been too much damage to turn it around and revive it."


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Quote from libertad:

Excellent Commentary....

South America has some of the best postings on ET...

Whereas ET has an option for those who do not wish to read certain writers postings it is called the "ignore list"..

There are individuals who such as "areyoukidding?" that do not have the common sense to use this option...

As I have...after reading "areyoukiddings" file ...just put this idiot who writes with no substance as though they were on cocaine...

on your IGNORE LIST.........
More...

i 2nd that.

ban the punk.
 
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