Moody's Investors Service downgraded its rating on MF Global Holdings Inc. to "junk" territory, and put the brokerage firm on review for additional downgrades. The company's battered shares tumbled again in premarket trading Friday.
This week MF Global, led by former New Jersey Gov. Jon Corzine, posted its biggest quarterly loss since it went public in 2007.
Moody's slashed the company's ratings late Thursday, the second time the ratings agency downgraded MF Global this week. The previous cut, however, had at least left MF Global in investment-grade territory.
Moody's analyst Al Bush lowered his long-term credit ratings on MF Global to "Ba2," or two notches below the lowest investment-grade rating, from his prior rating of "Baa3."
Shares of MF Global plunged 30 cents, or 21 percent, to $1.13 in premarket trading. As recently as Monday, the company's shares had traded as high as $3.77.
Bush said his latest downgrade "reflects our view that MF Global's weak core profitability contributed to it taking on substantial risk in the form of its exposure to European sovereign debt in peripheral countries."
At the end of the company's fiscal second quarter, MF Global's $6.3 billion risk exposure to foreign government debt represented five times the company's tangible common equity, Moody's noted.
"The tactical decision to assume this outsized proprietary position highlights the core profitability challenges faced by MF Global, and the scope of the re-engineering challenge facing the firm's management," Bush said.
The risks from the New York company's sovereign debt exposure, combined with the big quarterly loss, leave the firm exposed to a possible loss of confidence among its clients, and among other parties that deal with the MF Global, Moody's said.
Such a potential loss of confidence "could thus further challenge the company's franchise," Bush said.
The review for a downgrade will focus on MF Global's ability to manage such risks, Moody's said.
The ratings agency said that the Ba2 rating "is supported by the firm's adequate liquidity profile and price transparency of a majority of the firm's assets."
MF Global is a broker-dealer in futures, commodities, foreign exchange and other markets. MF Global went public in 2007. Corzine ramped up hiring to try to transform the company into a global investment bank that manages money for customers and provides capital services for companies. But in the past 12 quarters, MF Global has turned a profit just three times.
On Tuesday, MF Global reported that it 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.
On Wednesday, The Wall Street Journal reported that the company had hired Evercore Partners and at least one other bank to help it explore options, including mergers and asset sales. The report cited an unnamed source familiar with the company. A spokeswoman for MF Global said the company does not comment on market rumors and stock price activity.