Financial sector stocks tumble on UK mortgage firm collapse

Investing.com -- Shares of Barclays (LON:BARC), Apollo Global Management (NYSE: APO), Jefferies Financial Group (NYSE: JEF), and Wells Fargo (NYSE: WFC) fell Friday following concerns over their exposure to Market Financial Solutions Ltd., a UK mortgage firm that collapsed this week.

Barclays declined 3.4%, Apollo fell 7%, Jefferies dropped 8%, and Wells Fargo fell 4% as the extent of potential losses from the failed lender became apparent.

Creditors of MFS warned of a £930 million ($1.3 billion) shortfall in collateral backing their loans. Zircon Bridging Ltd. and Amber Bridging Ltd., the companies that forced MFS into a UK form of insolvency this week, accused the London-based firm of using the same assets as collateral for multiple loans.

This practice, known as double pledging, may have led to an "unaccounted-for deficiency" of more than 80% on £1.2 billion of debts, according to documents from their claim obtained by Bloomberg.

The collapse of MFS, which attracted backing from Wall Street lenders including Barclays, Apollo's Atlas SP Partners unit, and Jefferies, marks the latest crisis to hit both banks and direct lenders. The situation puts a spotlight on asset-based financing practices.

Accusations of double pledging have emerged in other recent corporate collapses, including US auto parts supplier First Brands Group and subprime auto lender Tricolor Holdings, both of which failed last year.

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