Knight: Urban Integration Going Well, Waiting for GNMA Approval

NewImage.jpgAfter closing the acquisition of Urban Financial in the beginning of July, Knight Capital Group Chairman and CEO, Tom Joyce, said the integration of the companies is going well.  “I can report we are making progress, great progress,” he said during a Q2 2010 earnings call with analysts.

Not much is expected to change in terms of how Urban operates.  The company headquarters will remain in Tulsa, Oklahoma, and Bryan Hendershot will continue as Chief Executive Officer and run the company as the Managing Director, Head of Mortgage Origination.

While the deal is said to already be cash flow positive, Joyce said that once Urban receives approval as a Ginnie Mae issuer, it will see additional revenues from origination securitization, distribution and secondary trading.  However, it’s not clear when it will get approved as an issuer.

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After seeing issuance of HMBS grow from $1.357 billion during 2008 to $8.538 billion in 2009, Ginnie Mae suspended approval of new issuers earlier this year to review the risks associated with the program.  The agency hasn’t publicly said when it will accept new issuers again, but sources close to Ginnie Mae tell RMD it’s expected in the next couple months if not sooner.

When asked about how much it paid to acquire Urban, Knight told analysts it chose not to break out the number because it was viewed as an an immaterial number relative to the size of its organization.  “We think it was an appropriate price paid for an appropriate business, but again obviously it wasn’t a material number,” said Joyce.  According to our sources, Knight paid $20-30 million for Urban.

Steve Bisgay, CFO of Knight Capital Group said the acquisition shouldn’t have much of an impact on the amount of capital needed to run its overall business.

“From a cash flow perspective we’re going to continue to rely on the warehouse lending mechanisms in place,” he said. “We may build upon those as the volume ramps up, but we don’t expect to be funding the loans from our own balance sheet, from our own cash.”

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  • Good management rarely acts quickly. Usually there is a period of leniency of anywhere up to 24 months for a new acquisition to acclimate.rnrnWhen acceptable assimilation is based in part on the approval of a new activity for the acquired party by a part of the federal government, Ginnie Mae in this case, which is acting erratically in regard to such approvals, danger looms for the management of the acquired party. Ultimately the u201choneymoonu201d could come to a crashing end. Such things can end in u201ccorporate divorce.u201drnrnOh well, this comment reflects my name. It seems my outlook is too jaded by experience. I wish all those involved in this acquisition the best. Enjoy the honeymoon.rn

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