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Knight Capital Group Inc. : Knight Capital Profit Slides 84%

01/24/2013 | 09:05am US/Eastern
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--Fourth-quarter earnings fall to $6.5 million amid slow trade

--Two long-serving executives to depart as Knight cuts, consolidates businesses

--Market-making profits slide 62%; no conference call held as Getco deal finalized

Knight Capital Group Inc. (KCG) on Thursday reported an 84% drop in fourth-quarter profit as the U.S. trading firm grappled with stagnant stock-market conditions and expenses tied to its planned takeover.

The Jersey City, N.J., company also said that two long-serving executives, including the official who oversaw technology at the time of Knight's August 2012 trading error, will depart the firm as businesses are realigned.

Knight's profit for the quarter fell to $6.5 million from $40.2 million a year earlier, with per-share earnings sliding to 1 cent from 43 cents, below the 3-cent average estimate of analysts polled by Thomson Reuters. Revenue fell 16% to $287.7 million.

The firm also disclosed more costs linked to the trading error last August that brought it close to collapse and prompted the planned sale to Chicago-based Getco LLC.

The results marked a return to profitability for Knight, among the biggest handlers of stock trades for discount brokers. However, profits from Knight's main business of trading with online brokerage firms fell 62% in the quarter to $32.4 million as individual investors traded less and market volatility almost halved, hampering Knight's ability to make money by dealing in rapidly moving stocks.

"Despite encouraging signs in retail trading activity, the poor overall market conditions constrained financial results," said Knight Chief Executive Thomas Joyce in a statement Thursday.

Shares of Knight fell 1 cent to $3.68 in recent trading.

The latest quarter included $7.7 million in fees tied to the Getco deal and the trading error, as well as an $11.4 million noncash write-down of a strategic investment. The year-ago period included a tax benefit of 2 cents a share.

On Aug. 1, faulty software at Knight flooded the stock market with mistaken trades that cost the firm $461.1 million and forced Knight to seek rescue from a group of financial firms, including Getco. The episode drove a $389.9 million third-quarter loss for Knight.

In September Knight shifted the role of technology boss Steven Sadoff, putting him in charge of Knight's planned foray into clearing securities trades for broker clients. On Thursday Knight announced it would curtail that venture, and Mr. Sadoff, who worked at Knight for 11 years, will leave the firm.

David Lehmann, Knight's head of electronic execution services, will also depart as Knight combines equity sales businesses. Mr. Lehmann worked at Knight for a decade.

Knight will not hold a conference call Thursday to discuss the results, as its takeover by Getco has yet to be finalized.

The Getco deal is expected to close in the second quarter, creating a trading powerhouse that would rank among the largest players on U.S. exchanges and a top trading partner of brokerage firms that service everyday investors.

Write to Jacob Bunge at jacob.bunge@dowjones.com and Saabira Chaudhuri at saabira.chaudhuri@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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