Knight Capital to Restructure Biz

Zacks

Knight Capital Group, Inc. (KCG) is set to slash jobs as a part of its restructuring initiative to reduce operating expenses and boost financial performance. This was unveiled by the company in its latest regulatory filing.

The main intention behind the streamlining program is to merge Knight Capital’s full service and electronic institutional equities sales teams, while ceasing correspondent clearing operations.

Knight Capital disclosed that nearly 5% of its global work-force will lose their jobs. As of Dec 31, 2012, the company had 1,524 full-time employees. Employees who came under the unsafe zone have already been informed and will be provided with severance payments and specified benefits.

Under the initiative, Knight Capital expects to incur a pre-tax charge in the range of $9–$11 million in the first quarter of 2013. Of this, employee severance and other employee benefit expenses will be about $8–$10 million. Further, the company anticipates extra charges related to the closing of its correspondent clearing unit.

Knight Capital was forced to undertake restructuring initiatives and additional capital infusion after a software glitch on Aug 1, 2012 led the company to record trading losses of nearly $440 million. The company – then on the verge of bankruptcy – was rescued through $400 million of capital from a group of investors, which included Getco LLC, The Blackstone Group LP (BX), Stifel Nicolaus & Co., TD Ameritrade Holding Corporation (AMTD), Stephens Inc. and Jefferies Group Inc. (JEF).

Later in Dec 2012, Getco announced that it will acquire Knight Capital for $1.4 billion. The cash-and-stock deal is expected to close in the first half of 2013. Under the terms of the deal, both the companies will combine to form a new publicly-traded company.

Overall, we believe the abovementioned cost saving measures will go a long way in improving the company’s performance. Further, the impending merger between Knight Capital and Getco will result in a more powerful trading platform and help the market participants to avail better facilities and make trading much simpler.

Currently, Knight Capital retains a Zacks Rank #2 (Buy).

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