About $2 billion worth of investments in short-term European debt securities formerly owned by MF Global, the debt that contributed to the collapse of the now-bankrupt New York-based broker-dealer, were bought by billionaire investor George Soros’s family fund, the WSJ reported on Friday, quoting people close to the matter.
According to the Journal, under the direction of its former chief executive, Jon Corzine, the firm’s board allowed MF Global’s exposure to European bonds to increase by more than four times between late fiscal 2010 and shortly before the securities firm filed for bankruptcy protection October 31. These liabilities, which led to unraveling investor confidence in the broker-dealer, at one point reached $6.3 billion, resulting in the firm’s collapse.
Though MF Global sold part of the bonds, about $1.5 billion, it still had about $4.8 billion worth of them on its books when it went bankrupt, the Journal wrote.
A number of large investors passed on the bonds but, according to people close to the matter quoted by the Journal, Soros’s interest together with that of his investment team at Soros Fund Management, was piqued and he bought around $2 billion of the bonds, issued by various European nations, mostly from Italy, at a level below the market price at the time.
A spokesman for the 81 year old Soros declined to give specifics about the company’s positions, the paper said.
“While our firm is always in the market, we have a policy of not disclosing details of our positions,” the spokesman said.
Soros’ Italian-debt purchase is significant because it may be perceived as a vote of confidence in the euro zone’s ability to sort out its massive debt problems. Having said that however, let’s keep in mind that Mr. Soros, known as one of the world’s savviest investors, said earlier this week that the European debt crisis is putting the global financial system in a “self-reinforcing process of disintegration.”
Europe currently faces a deep economic contraction and subsequent slow growth for several years even if it averts a eurozone breakup.