MF Global to seek bankruptcy protection

Wall Street has seen its first big casualty of the European debt crisis. MF Global, run by former New Jersey Gov. and Goldman Sachs Chairman Jon Corzine filed for bankruptcy Monday morning. In recent weeks MF Global (NYSE:MF) had come under increasing stress due to $6.3 billion in outstanding bets on the sovereign debt of some of Europe’s most troubled economies, including Spain and Italy.While plan announced last week by the European Union to help prop up the economies of its weaker members helped markets worldwide, it will not insulate financial institutions like MF Global from losses on holdings of European sovereign debt.

Similar to the fall of Lehman Brothers and Bear Stearns in 2008, questions about MF Global’s bad bets led investors to grow afraid of trading or transacting with the firm, sending the stock price down,and in turn scaring off investors further. This spiral drove the company’s stock down 67% in the last week.

According to the Wall Street Journal the company spent the weekend looking for potential buyers, but those efforts appear to have fallen apart. Amid these reports, the New York Federal Reserve has suspended any new business with MF Global Holdings. Trading in the company’s shares is also halted.

Corzine took over MF Global in 2010. MF Global was seen as a small assignment for a man who had once run Goldman, the most vaunted name on Wall Street. But at the time Corzine promised to turn MF Global into a Wall Street heavyweight by using Goldman’s strategy of making big bets with the firm’s own money. That strategy now appears to have led to MF Global’s current situation, increasing risks with little payoff. Last weekMF Global announced that it had lost $192 million in the third quarter.

MF Global’s stock has plummeted this month, while yields on its bonds have soared, as the company has reeled from its exposure to European sovereign debt. The stock closed Friday down 16% at $1.20. Shares are down 71% this month and 86% in 2011.

MF Global is a primary dealer, meaning it can do business directly with the Federal Reserve System.