By Nandini Sukumar - 2012-08-02T18:47:05Z
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Knight’s Joyce Says ‘All Hands on Deck’ After Error
Knight Capital Group Inc. (KCG) faces a tightening deadline to find a buyer or investor after reporting $440 million of losses from a trading breakdown.
Knight is exploring strategic and financial alternatives after putting the cost of the malfunction at quadruple its 2011 net income. The stock has lost 72 percent in two days after faulty software forced the company to advise clients of its market making business to route orders elsewhere yesterday and sent dozens of U.S. stocks swinging more than 10 percent.
Knight, one of the largest U.S. market makers, said it will continue trading and market-making as it considers its options. Analysts at CLSA Credit Agricole Securities said bankruptcy was a possibility if the Jersey City, New Jersey-based firm failed to get financing. Knight said it’s in full compliance with its net capital requirements.
“They need to do something fast,” said Peter Lenardos, an analyst at RBC Capital Markets in London. “There is a desperate need for capital, as Knight themselves acknowledge.”
Kara Fitzsimmons, a spokeswoman at Knight, didn’t immediately return phone calls and e-mails seeking comment.
“Although the company’s capital base has been severely impacted, the company’s broker/dealer subsidiaries are in full compliance with their net capital requirements,” Knight said today. “The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.”
[h=2]Vertu Report[/h]Knight is in discussions about a potential merger or capital investment with trading firm Virtu Financial LLC, the Wall Street Journal reported, citing unidentified people familiar with the matter.
“They are clearly seeking a buyer or a strategic investor,” Lenardos said. “It might be private equity, it could be a big sell-side bank, it could be a peer like Citadel.”
Katie Spring, a spokeswoman for Chicago-based Citadel LLC, the investment firm run by Ken Griffin, declined to comment.
Citadel’s electronic-trading and market-making unit carries about 4 percent of U.S. equity volume.
Knight’s market-making unit executed a daily average of $19.5 billion of equities in June with volume of 3.1 billion shares, according to its website. The company had net income of $115.2 million in 2011 on revenue of $1.4 billion, data compiled by Bloomberg show.
“The businesses they are in are attractive to other players,” Justin Schack, managing director for market-structure analysis at Rosenblatt Securities Inc., said in a phone interview. “The likely candidates include banks that have an equity capital markets business and firms that want to get into market making.”
[h=2]Trading Reviewed[/h]The New York Stock Exchange reviewed trading in 140 stocks from Molycorp Inc. (MCP) to AT&T Inc. as the market’s open was disrupted yesterday. Trades that occurred during the height of the volatility were canceled in six securities, where prices swung at least 30 percent in the first 45 minutes.
Knight has “all hands on deck” and is in close contact with clients and counterparties as it tries to weather the errors, Chief Executive Officer Thomas Joyce said in a Bloomberg Television interview today. He declined to comment on discussions with creditors. The problems were triggered by what Joyce called “a bug, but a large bug” in software as Knight prepared to trade with a New York Stock Exchange program catering to individual investors.
“There’s a lot of uncertainty as to what happened and that creates litigation uncertainty,” said Albert Helmig, former vice chairman of the New York Mercantile Exchange and former President of the Hong Kong Mercantile Exchange, who now works as a consultant. “Those issues need a greater level of clarity for potential buyers.”
[h=2]MF Global[/h]MF Global Holdings Ltd., the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed the eighth largest U.S. bankruptcy in October, days after a $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations led to credit downgrades and margin calls.
Knight had $365 million of cash as of the end of June, with about $70 million in its revolving credit line, Robert Rutschow, a New York-based analyst with CLSA wrote in a report today. He said there’s a risk it will break loan covenants and cut his rating on the stock to sell from outperform.
Investors hold $375 million of Knight convertible notes and can demand repayment if there’s a “fundamental change,” including a sale, according to a 10-K filing. The biggest owners of the notes are Goldman Sachs, Oaktree Capital Management, Invesco Ltd. and Citadel Advisors LLC, according to data compiled by Bloomberg.
The notes were trading at about 83 percent of face value, according to prices reported by Trace.
“Market making is a profitable business,” Helmig said. “If you have it right, it’s a very profitable business, but it needs a lot of cash to maintain certain trading activities. There is nothing wrong with that business, they just need adequate funding.”
To contact the reporter on this story: Nandini Sukumar in London at [email protected]
To contact the editor responsible for this story: Andrew Rummer at [email protected]
Enlarge image
[h=3]Knight Facing Pressure to Find Investor After $440 Million Loss[/h]
Duncan Niederauer, chief executive officer of chief executive officer of NYSE Euronext, left, and Thomas M. Joyce, chairman and chief executive officer of Knight Capital Group Inc., tour the floor of the New York Stock Exchange.
Duncan Niederauer, chief executive officer of chief executive officer of NYSE Euronext, left, and Thomas M. Joyce, chairman and chief executive officer of Knight Capital Group Inc., tour the floor of the New York Stock Exchange. Photographer: Jin Lee/Bloomberg
You need to enable Javascript to play media on Bloomberg.com
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Knight’s Joyce Says ‘All Hands on Deck’ After Error
Knight Capital Group Inc. (KCG) faces a tightening deadline to find a buyer or investor after reporting $440 million of losses from a trading breakdown.
Knight is exploring strategic and financial alternatives after putting the cost of the malfunction at quadruple its 2011 net income. The stock has lost 72 percent in two days after faulty software forced the company to advise clients of its market making business to route orders elsewhere yesterday and sent dozens of U.S. stocks swinging more than 10 percent.
Knight, one of the largest U.S. market makers, said it will continue trading and market-making as it considers its options. Analysts at CLSA Credit Agricole Securities said bankruptcy was a possibility if the Jersey City, New Jersey-based firm failed to get financing. Knight said it’s in full compliance with its net capital requirements.
“They need to do something fast,” said Peter Lenardos, an analyst at RBC Capital Markets in London. “There is a desperate need for capital, as Knight themselves acknowledge.”
Kara Fitzsimmons, a spokeswoman at Knight, didn’t immediately return phone calls and e-mails seeking comment.
“Although the company’s capital base has been severely impacted, the company’s broker/dealer subsidiaries are in full compliance with their net capital requirements,” Knight said today. “The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.”
[h=2]Vertu Report[/h]Knight is in discussions about a potential merger or capital investment with trading firm Virtu Financial LLC, the Wall Street Journal reported, citing unidentified people familiar with the matter.
“They are clearly seeking a buyer or a strategic investor,” Lenardos said. “It might be private equity, it could be a big sell-side bank, it could be a peer like Citadel.”
Katie Spring, a spokeswoman for Chicago-based Citadel LLC, the investment firm run by Ken Griffin, declined to comment.
Citadel’s electronic-trading and market-making unit carries about 4 percent of U.S. equity volume.
Knight’s market-making unit executed a daily average of $19.5 billion of equities in June with volume of 3.1 billion shares, according to its website. The company had net income of $115.2 million in 2011 on revenue of $1.4 billion, data compiled by Bloomberg show.
“The businesses they are in are attractive to other players,” Justin Schack, managing director for market-structure analysis at Rosenblatt Securities Inc., said in a phone interview. “The likely candidates include banks that have an equity capital markets business and firms that want to get into market making.”
[h=2]Trading Reviewed[/h]The New York Stock Exchange reviewed trading in 140 stocks from Molycorp Inc. (MCP) to AT&T Inc. as the market’s open was disrupted yesterday. Trades that occurred during the height of the volatility were canceled in six securities, where prices swung at least 30 percent in the first 45 minutes.
Knight has “all hands on deck” and is in close contact with clients and counterparties as it tries to weather the errors, Chief Executive Officer Thomas Joyce said in a Bloomberg Television interview today. He declined to comment on discussions with creditors. The problems were triggered by what Joyce called “a bug, but a large bug” in software as Knight prepared to trade with a New York Stock Exchange program catering to individual investors.
“There’s a lot of uncertainty as to what happened and that creates litigation uncertainty,” said Albert Helmig, former vice chairman of the New York Mercantile Exchange and former President of the Hong Kong Mercantile Exchange, who now works as a consultant. “Those issues need a greater level of clarity for potential buyers.”
[h=2]MF Global[/h]MF Global Holdings Ltd., the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed the eighth largest U.S. bankruptcy in October, days after a $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations led to credit downgrades and margin calls.
Knight had $365 million of cash as of the end of June, with about $70 million in its revolving credit line, Robert Rutschow, a New York-based analyst with CLSA wrote in a report today. He said there’s a risk it will break loan covenants and cut his rating on the stock to sell from outperform.
Investors hold $375 million of Knight convertible notes and can demand repayment if there’s a “fundamental change,” including a sale, according to a 10-K filing. The biggest owners of the notes are Goldman Sachs, Oaktree Capital Management, Invesco Ltd. and Citadel Advisors LLC, according to data compiled by Bloomberg.
The notes were trading at about 83 percent of face value, according to prices reported by Trace.
“Market making is a profitable business,” Helmig said. “If you have it right, it’s a very profitable business, but it needs a lot of cash to maintain certain trading activities. There is nothing wrong with that business, they just need adequate funding.”
To contact the reporter on this story: Nandini Sukumar in London at [email protected]
To contact the editor responsible for this story: Andrew Rummer at [email protected]
Enlarge image
[h=3]Knight Facing Pressure to Find Investor After $440 Million Loss[/h]
Duncan Niederauer, chief executive officer of chief executive officer of NYSE Euronext, left, and Thomas M. Joyce, chairman and chief executive officer of Knight Capital Group Inc., tour the floor of the New York Stock Exchange. Photographer: Jin Lee/Bloomberg