Knight posts loss on restructuring, deal costs, but tops views

Wed May 1, 2013 6:04am EDT

* Q1 loss of 3 cents a share

* Minus one-time items, earns 6 cents a share, versus expectations of 4 cents a share

* Headcount down to 1,269 full-time employees from 1,418 a year earlier

NEW YORK, May 1 (Reuters) - Automated trading firm Knight Capital Group posted a quarterly loss as a result of restructuring costs following its Aug. 1 trading glitch, along with expenses related to its subsequent $1.4 billion takeover by Getco Holding Co.

A software problem at Knight in August led to millions of unintentional orders flooding into the market over a 45-minute period, leaving the firm with a huge position it had to unload at a loss of $461.1 million.

Knight said on Wednesday it fell to a first quarter loss of $9.4 million, or 3 cents a diluted share, compared with a profit of $33.1 million, or 36 cents a share, a year earlier.

Stripping out one-time items it earned 6 cents a share from continuing operations, topping analysts' average forecast by 2 cents, according to Thomson Reuters I/B/E/S.

Revenues fell 5.7 percent to $285.2 million.

Following the August glitch, Knight secured $400 million in rescue financing - in exchange for a more than 70 percent stake in the company - from a group of investors that included Chicago-based Getco as well as St. Louis-based Stifel Financial Corp. The deal was led by Jefferies Group, which later helped finance Getco's proposed acquisition of Knight that is expected to close in the first half of 2013.

The near-death encounter also led Knight to reorganize its business. During the first quarter it sold its institutional fixed income sales and trading business to Stifel, cut its correspondent clearing unit, and combined its institutional sales and trading, and electronic execution services units.

As a result of the restructuring, headcount at the firm was down to 1,269 full-time employees as of March 31, compared to 1,418 a year earlier.

Knight said it had $8.9 million in compensation fees related to the layoffs. It also said it had $9.3 million in professional fees related to the Aug. 1 glitch and the Getco deal.

Knight, a top U.S. market making firm, made an average of 2.97 million trades a day in the quarter, down 10.8 percent from a year earlier.

Consolidated U.S. equity volume declined 5.8 percent from a year earlier to around 6.1 billion trades per day.

Knight's operations outside of market making include foreign exchange and bond trading platforms, as well as a stake of around 20 percent in No. 4 U.S. equities exchange Direct Edge.

Getco also has market making operations and is one of the biggest high-frequency trading firms. Getco is also a big player in the automated trading foreign exchange market and has been building up its agency brokerage operation over the past few years.

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