Andrew Abraham

andy-0101 My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I adhere to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets me apart from other traders is that I am not only concerned about the return on investment but how much risk I will have to tolerate to achieve my goals.

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MF Global Customers Getting Closer to Being Made Whole?

I had this piece emailed me this morning as well as an offer of now 87 cents versus…85…on the dollar last week.

The recent discovery that MF Global’s reserve fund grew by 45% in January to USD 1.455bn could be a boon for the bankrupt broker dealer’s domestic customer claimants in their hunt to maximize recovery, according to two buysiders and a sellside analyst. Other assets such as new litigation claims and real estate transfers could also work to enhance customer prospects, they added.

Domestic claim holders have been trying to calculate their expected recovery with limited information since MF Global filed for Chapter 11 protection on Halloween. The matter is clouded by the debtor’s inability to account for USD 1.2bn of missing customer money, the location of US customer funds in foreign jurisdictions, and the ambiguous provenance of funds that have actually been located overseas.

Given the value of the estate that’s been accounted for to date, domestic customer account holders are in line for a 72% recovery. But if the USD 1.455bn reserve is fully delivered to domestic customers it could add another 24 cents of upside, lifting recovery to 96%, the sources said.

The market is trading the claims within an 87-90 range, factoring in the chance that the reserve pool could get beset by competing claimants arguing for some entitlement, according to one of the buysiders. The reserve – which came to light in a court filing earlier this month — consists of actual funds that are already under control of SIPA Trustee James Giddens. However, the money is still subject to having other claims levied against it, such as from MF Global’s UK entity, the sources said.

“If it could be proved without a doubt that this money belonged to customers, it would likely have been distributed already,” said Kevin Starke, senior analyst at CRT Capital

More irons in the fire

Even if the reserve amount is diluted by overseas claims, domestic claimants may benefit from other potential windfalls, according to the sources.

A way that this could happen is if the overall amount of the customer claims pool is reduced from its current level of USD 5.9bn – USD 6bn, the sources said. Giddens previously allowed that the figure could drop as low as USD 5.5bn.

Additional upside for domestic customers could come by way of more general estate property getting allocated to customers, the sources continued. So far the Trustee has marshaled USD 290.43m of general property to the estate for dispersion.

A third variable for domestic customers to reach for is a USD 175m claim against the UK estate for a suspect wire transfer, the existence of which popped up in a report Giddens filed with the court on Monday (6 February).

In the same Monday report, Giddens wrote that his investigation found that funds in customer accounts thought to exceed segregation requirements were regularly siphoned off to fund other MF Global activities. In the days leading up to bankruptcy, when margin calls mounted, including USD 553m related to a USD 6.3bn repo-to-maturity sovereign debt trade, customer accounts were lost in the chaos. In searching for missing funds, the Trustee has examined over 20,000 transactions totaling USD 327bn across 47 bank accounts and eight banks.

Another recent event shaping the case came to light on 3 February, when the UK administrator released a status report that detailed claims progress. The report implied that the MF UK subsidiary could prove solvent, meaning its positive value could accrue to holdco creditors. MF UK received 2,643 claims totaling USD 2.1bn, but only USD 950m are client claims. Over 90% of this money resides at the UK, according to the report. The UK Administrators will file an update by 29 February, which is also the client bar date.

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