Struggling Knight seeks financial rescuer
KNIGHT CAPITAL Group, fighting to stay afloat after a $440 million loss spurred by a software bug, scrambled with its advisers to find a buyer or investor.
The market maker responsible for about 10 per cent of American equity volume turned to Goldman Sachs Group on August 1st to buy the firm out of trading positions acquired by mistake when a computer program malfunctioned, a person with knowledge of the matter said.
It has until the close of business today to complete the transaction.
“There’s a lot of questions about their liquidity – do they have the money to get through the trade settlement ?” Patrick O’Shaughnessy, an analyst at Raymond James and Associates said in an interview with Pimm Fox on Bloomberg Television’s Taking Stock. “They have to find somebody to either invest capital into the company or somebody who’s just going to buy the company outright.”
Knight made it to the weekend after receiving short-term financing for market making, according to a person familiar with the matter who requested anonymity. TD Ameritrade Holding and Scottrade, which sent trades elsewhere for execution after Knight’s bug, said they were routing orders back.
Chief executive Thomas Joyce did not return a call seeking comment. As the company opened its books to potential saviours, experts said KKR and Co, TPG Capital and Silver Lake were among buyout firms that had an initial interest – although one said chances of a private-equity deal are small. Citadel LLC, the Chicago-based hedge fund, expressed interest, as has Two Sigma Securities LLC, a New York-based market maker, people with direct knowledge of the matter said.
“I seriously doubt they will go out of business, Kenneth Pasternak, who co-founded Knight in 1995, said in a phone interview from his Ridgefield Park, New Jersey, private equity firm Kabr Real Estate Investment.
“I just hope they can maintain the innovation. My fear is they will be bought by some big bank and become consumed.”
Representatives at Silver Lake, TPG, KKR, Citadel and Two Sigma declined to comment. Adviser Aid Knight is working with Sandler O’Neill and Partners LP as advisers in the rescue talks, said one of the people, who spoke on condition of anonymity.
The trading fault, which caused stocks to move as much as 151 per cent, left the firm with a “large error position”, Mr Joyce said. on Thursday. “We’re talking to a lot of capable people, people who are in touch with situations like this, he said. “This was an anomaly, not one we’re proud of.”