March 19, 2013 / 2:21 PM / in 5 years

Knight expects up to $33 million charge after Stifel deal

NEW YORK (Reuters) - Automated trading firm Knight Capital Group KCG.N said it expects a pre-tax charge of between $27 million and $33 million related to the recent agreement to sell its institutional fixed-income sales and trading business to Stifel Financial Corp (SF.N).

Employee severance and benefit costs make up $12 million to $15 million of the charge, while the write-down and loss related to its sublease of office space in Greenwich, Connecticut adds $11 million to $13 million, according to a regulatory filing on Tuesday. The remaining $4 million to $5 million of the charge comes from professional fees and contract termination costs.

Knight, which recently agreed to be bought by Getco Holding Co for $1.4 billion, said that Alan Lhota, currently co-head of institutional fixed income, would be leaving the company.

Stifel said last week it would buy Knight’s fixed income business for an undisclosed amount.

The institutional fixed income unit employs around 60 people in sales and trading in the United States and 40 in Europe, covering high-yield and investment-grade corporate bonds, asset-backed and mortgage-backed securities, and emerging markets, as well as fixed income research.

A spokesman for Knight said the company is not disclosing where the layoffs will take place.

Knight was forced to take on additional investors and re-examine its entire business following a software problem in August that led to millions of unintentional orders flooding into the market over a 45-minute period, leaving Knight with a huge position it had to unload at a loss of $461.1 million.

    Following the 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, and was led by Jefferies Group Inc.

    Separately, Knight said last month it would lay off 5 percent of its global workforce as part of efforts to restructure the firm. It said it expected to incur a pre-tax charge of between $9 million and $11 million in the first quarter as a result of combining its voice and electronic sales teams and winding down its correspondent clearing operations.

    Knight also has a major market making business that executes up to around 10 percent of U.S. stock transactions, as well as foreign exchange and bond trading operations, and reverse mortgage origination and asset management units.

    Reporting By John McCrank; Editing by Chris Reese

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