Sale talks of Knight Capital Group in Jersey City, N.J. to Chicago’s Getco or New York’s Virtu could result in a new round of layoffs at the market maker. The firm put itself up for sale after a trading glitch last August caused customers and counterparties to lose confidence in the firm.
Layoffs are more likely if Getco buys the company, analysts said, because it will remain publicly traded. “If they remain a public company, they don’t get a breather. They need to perform right away,” said Larry H. Lattig, president of Mesirow Financial Consulting. A purchase by Virtu, which is privately held, would take Knight private, making “the odds much, much better for the employees,” Lattig said.
Getco already has a stake in Knight, along with TD Ameritrade, Jefferies Group, the Blackstone Group, Stifel Nicolaus, and Stephens, after a bailout deal in August 2012. In exchange for $400 million in equity financing, the investor group received shares of preferred stock convertible into approximately 267 million shares of common stock, or a 73 percent stake.
Knight, Getco and Virtu wouldn’t comment on possible cuts in headcount.
Possible Restructuring Ahead (Again)
Regardless which firm acquires Knight, institutional staffers should be worried about losing their jobs, said Chris Allen, an analyst with Evercore Partners, “At the end of the day, the institutional business is not profitable,” said Allen. “I could see another massive restructuring or even a shutdown coming.” In the third quarter 2012, the institutional and sales trading side of the business posted total revenue of $101.7 million and a pre-tax loss of $140.8 million.
Knight reported a $461 million loss related to an August 2012 trading tech glitch, as well as a subsequent SEC investigation into the trading irregularities.
In 2011, Knight announced a restructuring of its institutional sales and trading division and company wide layoffs. As of year-end 2011, the institutional sales and trading segment reported total revenues of $511.5 million and a pre-tax loss of $44.4 million.