Brokerage battles to survive

NEW YORK - Refco, the commodities and futures brokerage whose shares have fallen more than 60 per cent this week, said yesterday liquidity at a major company unit was no longer sufficient to continue operations, fuelling concern about the entire firm's survival.

The news comes after federal authorities charged former chief executive officer Phillip Bennett with securities fraud on Thursday over hundreds of millions of dollars in transactions owed to the company by an entity he controlled.

Refco said in a statement it would halt activities at its Refco Capital Markets unit for 15 days to protect its value.

"This company is in serious jeopardy," said Weeden & Co analyst Kevin Starke.

Trading in shares of Refco had been halted pending the statement. The shares last traded at US$10.85 ($15.74) on the New York exchange on Thursday. In pre-market trade, the shares fell US$2.85 to US$8.

Separately, Refco said it had hired former US Securities and Exchange Commission chairman Arthur Levitt and former US Comptroller of the Currency Eugene Ludwig as special advisers to its board. It also retained Goldman Sachs as its financial adviser.

Refco's 9 per cent coupon bond due in 2012 dominated trading in the US secondary bond market yesterday as it plummeted to 52.25USc on the dollar, from 75.5USc on Thursday. It had traded as high as 108.25USc on the dollar at the end of last week.

"The fact that the bonds are trading at just above 50 cents on the dollar suggests that bankruptcy is at least a 50-50 possibility," Starke said.

"It's very possible they may have to sell a unit, or at least renegotiate their bank loans." When Refco went public two months ago and raised US$583 million, Bennett and "others known and unknown" concealed related party transactions between Refco and the other undisclosed entity, according to prosecutors.

This made the entire company look stronger than it was during its initial public offering.

Bennett, who owned about 34 per cent of Refco when it went public, "hid from investors and regulators the debt of hundreds and millions of dollars that one of Bennett's companies owed to Refco," US Attorney Michael Garcia said on Thursday.

- REUTERS