David Goldman for The New York TimesJon S. Corzine, the chief executive of MF Global, has tried to figure out ways to promote the firm’s financial strengths.
9:07 p.m. | Updated
MF Global, the commodities and derivatives brokerage house, was in a fight for its life Thursday night after the firm drew down its main credit line and two major credit ratings agencies cut their ratings on the firm to junk.
MF Global is scrambling to sell some or all of itself. The firm has enough assets to survive for at least the next few days, said a person outside the firm who was briefed on its condition.
The pressure on MF Global is mounting even as a deal over Greece’s debt has provided market relief to other American financial institutions. Investors have grown increasingly worried about MF Global’s capital position given its exposure to $6.3 billion in debt from Italy, Spain, Belgium, Ireland and Portugal.
But during the market day on Thursday, Fitch Ratings cut its credit rating on the firm to junk status, and shares of MF Global tumbled nearly 16 percent, even as other financial stocks surged.
Late on Thursday, Moody’s Investors Service cut its rating on MF Global for a second time this week, to Ba2 from Baa3. The downgrade to junk status, Moody’s said, “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.”
The other major credit ratings agency, Standard Poor’s, warned on Wednesday that it might cut its ratings, too. The ratings downgrades could limit the number of counterparties willing to trade with MF Global.
To bolster its cash position, MF Global has tapped a $1.3 billion credit line at the parent company level, people briefed on the matter said Thursday evening. The firm still has financing available, including at least some of a $300 million revolving credit line in its broker-dealer subsidiary as well as bank overdrafts and letters of credit.
An MF Global spokeswoman, Tiffany Galvin, declined to comment.
People close to MF Global said that as of Thursday afternoon, only a small percentage of client funds — in the low single digits — had left the firm. Most of that appeared to be clients spreading their accounts across multiple brokerage houses.
These people added that the firm had adequate liquidity and that it was not contemplating filing for bankruptcy.
For days, analysts and investors have worried that time is running short for MF Global to solve its multiplying problems. The firm has hired Evercore Partners to help it assess strategic options, which include potentially selling its futures brokerage unit to a larger institution, according to people briefed on the deliberations.
But the firm is still considering other alternatives and has not settled on a definitive course of action, these people cautioned.
Within MF Global’s offices in Midtown Manhattan, the mood among the rank and file has been tense but defiant. Many employees have been working through the night talking to clients concerned about the speculation about the firm.
The firm’s chief executive, Jon S. Corzine, has held several firmwide conference calls to disseminate talking points on the company’s financial strength, according to a person with direct knowledge of the matter.
Many lower-level employees say they believe that talk about the firm’s troubles is overblown, and some have even bet on a comeback by buying MF Global shares for their personal accounts, this person said.
Major exchanges including the IntercontinentalExchange and the CME Group said that MF Global remained a clearing member in good standing as of Thursday afternoon, according to representatives for the bourses.
But that was before Bloomberg News reported that MF Global had drawn down its credit line.
Thursday’s downgrade marks the latest blow to MF Global, which Mr. Corzine, the former Goldman Sachs chief and former New Jersey governor, has sought to transform itself from a derivatives and commodities brokerage into a full-blown investment bank. A centerpiece of that plan included taking on additional risk, and potential profit, by making more trades using the firm’s own capital.
That plan has been dealt sharp setbacks over the past week, starting with a ratings downgrade by Moody’s on Monday and MF Global’s announcement of a $186 million quarterly loss the next day.
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