Knight Capital Rises: Investors Rescue Brokerage Through $400 Million Stock Sale

Knight Capital Group Inc. (NYSE:KCG) has settled on a plan—selling $400 million worth of stock to investors—to save the brokerage after a technical glitch with its trading software caused it to lose $440 million last week.

The Jersey City, N.J.-based firm, which owns Urban Financial, the largest reverse mortgage business, said in an 8-K filing on Monday that it had entered into a securities purchase agreement with investors on Aug. 6 to issue $400 million worth of 2% convertible preferred stock. The stock could be converted into about 267 million shares of common stock in the company, valued at about $1.50 per share.

Blackstone Group LP, Getco, and TD Ameritrade Holding Corp, Stifel Nicolas, Jefferies Group Inc and Stephens Inc. purchased the shares for a 73% stake in the company, according to a Knight statement.

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“We are grateful for the support of these leading Wall Street firms that came together to invest in Knight,” Tom Joyce, the firm’s chairman and chief executive officer, said in the statement. “The array of participants in this capital infusion underscores Knight’s critical role in the capital markets.”

The brokerage has previously confirmed that its reverse mortgage business, Urban Financial Group, would continue operations despite Knight’s losses and that its capital base had not been impacted.

Knight’s financial position and capital base are now restored to a level that “more than offsets” last week’s loss, according to Joyce.

Sandler O’Neill + Partners, L.P. and Wachtell, Lipton, Rosen & Katz advised Knight on the transaction. The 8-K filing can be accessed here.

Written by Alyssa Gerace

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  • When you look at Wells, BOFA, Met, Financial Freedom, Urban reverse mortgage they are all operating under that umbrella. When something goes haywire at the big dogs office (too many foreclosures, an insurance company first, a bad trade, bad investments, not our corse business, we changed our thinking) a quick phone call can cause many to nail bite and even looking for new jobs. Best to work for/with a reverse ONLY company these days…especially in this environment. Genworth and Knight have a combined $7 stock and many problems to add..

    • reverseguru1,

      Even though I have been an officer at Security One since its early beginnings, different people have different needs.  While I believe that Security One is the best choice for originators, that is nothing more than opinion.

      Despite their early image to Boomers, the largest employers have proven they can and will terminate operating units at will.  What might look like a secure position at the time of employment may not be so secure after being hired.

      Not that long ago an originator tried to put me in my place by arguing that the employer he worked for had been in the financial services industries for over 100 years.  He went on and on about the security he had with that company versus the security I had with mine.  Since I would not respond, it is clear he felt he won that argument.  Today that company no longer has operations in our industry.  Smartly this individual saw the handwriting on the wall and switched employers to Security One before the end came.  His former employer met his needs before the switch and I hope we are meeting his needs today.

      We will see other large companies go and come over time but our industry would be miserable if there were not a wide diversity of employers.

      Yes, I encourage everyone to take a look at Security One but Security One may not be for everyone.    

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