* MF Global futures brokerage unit seen most attractive
* MF called several large banks to gauge interest-sources
* Junk rating make funding pressures worse for MF Global
* Shares hit all-time low of 99 cents Friday morning
* Bonds plunge to 38 cents on the dollar, from 70 Thursday
By Jonathan Spicer and Paritosh Bansal
Oct 28 (Reuters) - MF Global Holdings Ltd is racing to sell all or part of its business this weekend, with its futures brokerage business seen as the most attractive, a source familiar with the situation said on Friday.
MF Global has reached out to major banks including Barclays PLC , Citigroup Inc , Deutsche Bank , Jefferies Group Inc , JPMorgan Chase & Co , Macquarie Group Ltd , State Street Corp and Wells Fargo , according to the source.
Private equity firm J.C. Flowers, which has a stake in MF Global, is also in talks about possibly taking it private, the Wall Street Journal reported.
“If it gets done, it needs to get done by Monday,” the source said. “Whether it gets sold in parts or pieces, they are in good shape to orchestrate this process.”
MF Global has declined to comment on its troubles.
Barclays, Citigroup, Deutsche, Jefferies and Wells Fargo also declined to comment, while the other banks and Flowers could not be reached immediately for comment late on Friday.
Pressure mounted on MF Global — run by former Goldman Sachs Chief Executive Jon Corzine — to sell after a week in which it posted a quarterly loss, its shares fell by two-thirds and its credit ratings were cut to junk.
The brokerage, which under Corzine increasingly used its own capital to trade, is paying the price for investments made on bonds of countries in the euro zone, and it is emerging as one of the hardest-hit U.S. firms in the fallout from Europe’s sovereign debt crisis.
When a broker’s credit rating drops to junk, it erodes confidence in its credit worthiness and can then restrict its ability to borrow — the bedrock of any financial institution — and fund day-to-day operations.
The firm’s position in the repurchase market — a vital place for short-term funding — is under intense scrutiny because of the weakness in European debt.
MF Global is now scrambling to reassure sometimes skittish clients about its stability. But it told at least one fund that a number of clients are withdrawing money.
Its troubles become “a self-fulfilling prophecy,” said Perry Piazza, director of investment strategies at Contango Capital Advisors in San Francisco. “The end game here is not good,” he said.
MF Global stock dropped as much as 31 percent in early trading to 99 cents, its lowest ever, but later rebounded to $1.29. It was the second most actively traded stock on the New York Stock Exchange.
The company’s bonds were trading in the mid-40s, which implies a high likelihood of default, after touching a morning low of 38 cents on the dollar. That was down from Thursday when the bonds, maturing in 2016 with a 6.25 percent coupon, were at 70. MF Global had offered the notes at par in August.
The company tapped Evercore Partners Inc to advise it on strategic options including a possible sale, said a source familiar with the situation. A second source, who was briefed on the matter, said the company did not enter the talks with “specific targets and objectives.”
“We believe MF could generate proceeds from sale of its customer asset portfolio or Futures Commission Merchant which frees up capital,” Keefe Bruyette & Woods analyst Niamh Alexander wrote to clients. “However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity.”
MF Global’s history dates back over 200 years, to a sugar broker that started in London. For years, MF Global focused on futures brokerage. In 2005, the company, formerly known as Man Financial, acquired Refco’s U.S. futures business after that broker collapsed in an accounting scandal.
The company’s futures business is in a cyclical downturn, but when interest rates rise, its income could surge and its clients could help boost another bank’s broader sales and trading franchise.
Potential bidders are, however, unlikely to pay up for a business like the Futures Commission Merchant, in part because customers can take their relationships elsewhere, industry sources said.
Some customers are diverting money from the New York-based brokerage, according to hedge funds, rivals and analysts, though the extent of the outflows remained unclear.
A source at one of the firms that MF Global has reached out to said they wouldn’t rule out their interest in some sort of a deal, but it would have to be something that involved taking on little risk.
A source at a different firm said it was difficult to buy the business because it is hard to evaluate the company’s customers quickly, and the best customers could leave soon.
Some potential buyers said they would look at the business if MF Global offered it for cheap, a third source said.
Corzine, who became CEO in March last year after a term as New Jersey’s governor, has been trying to transform MF Global from a brokerage that mainly places customers’ trades on exchanges into an investment bank that bets with its own capital.
But its bets on bonds from euro zone countries, including those issued by Italy, Spain, Portugal and Ireland, have gone bad, prompting regulators to press it to boost capital and ratings agencies to issue their warnings.
The loss of its investment grade rating, meanwhile, could hasten the exodus of customers away from MF Global.
“Given the uncertainty around timing of the agencies’ next move, management needs to move quickly in order to avoid client defections and either work on strategic options or work with the agencies to get back to stable status,” Deutsche Bank analyst Michael Carrier wrote to clients.
MF Global’s bank loans were lower Friday amid rumors the company drew down its revolving credit lines, separate sources said. The extended revolver due 2014 is quoted 60-65 on Friday after a large piece of the paper is said to have changed hands on Thursday at 70, the sources said.
European Union leaders struck a deal this week to relieve the continent’s sovereign debt crisis — potentially good news for MF Global — but many details of the EU deal still need ironing out.
In Asia, the Singapore Exchange said MF Global’s unit in the city state is meeting its financial obligations as a clearing member. That echoes assurances Thursday by U.S. clearers CME Group Inc , IntercontinentalExchange Inc and options clearinghouse OCC.