Knight Capital Q4 Revenues Up 32%, Assisted by Urban HMBS Issuance

On Jan. 19, Knight Capital Group, Inc. (NYSE Euronext:KCG) reported consolidated earnings of $40.2 million, or $0.43 per diluted share, for the fourth quarter of 2011 with revenues from continuing operations increasing 31.7% to $341.3 million.

Knight acquired Urban Financial Group in July 2010, and the reverse mortgage company has since contributed to operational revenues. Urban is currently ranked third in wholesale and retail reverse mortgage originations, behind Wells Fargo and MetLife, Knight chairman and CEO Thomas Joyce noted in the earnings call.

“Continuing operations” includes income from Urban, under Knight’s Institutional Sales and Trading segment. This segment generated total revenues of $103.8 million and a pre-tax loss of $17.1 million in the last quarter of 2011.

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“In Institutional Sales and Trading, Knight produced strong revenues and renewed efforts to decrease expenses,” said Joyce. “We generated balanced contributions across products and regions. Further, the institutional equities and fixed income teams instituted a number of measures to increase referrals and cut costs. During the quarter, Urban worked to secure its position among the reverse mortgage industry leaders in lending and issuance.”

During the earnings call, Knight named Urban as a contributing factor to the majority of the company’s asset growth, which went from $4.7 billion in 2010 to $7.2 billion by the end of 2011.

Knight noted $1.7 billion of Urban home equity conversion mortgages (HECMs) that have been securitized and listed on the company’s balance sheet at fair value in accordance with current accounting standards. Urban issued $450 million of HMBS securities in the fourth quarter, down from about $600 million the previous quarter, according to the earnings call.

As of Dec. 31, 2011, Knight’s headcount was 1,423, an increase from the previous year’s 1,326. This larger amount was attributed to Knight’s acquisitions of businesses, including its Urban expansion.

Despite mentioning the “tough” and “challenging” economic climate multiple times, Knight said it’s confident that “2012 will be the year of the turnaround.”

Written by Alyssa Gerace

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