While recent ideas on the value of Urban Financial Group to its parent company Knight Capital Group (NYSE:KCG) have suggested the company provides upside in the wake of near-financial ruin experienced by Knight in early August, a Wall Street Journal report on the company’s current position suggests otherwise. Knight says, however, it remains committed to the business.
Having announced this week the appointment of new leadership to Knight’s board of directors, new information obtained by WSJ indicates the company may be interested in the sale of Urban Financial Group.
“Urban Financial, Knight’s reverse-mortgage division and part of the institutional unit, represents a capital-heavy business that carries reputational risk; it is seen as a potential target for trimming, according to a person familiar with the thinking of one of the new investors,” WSJ reports.
But Knight’s Al Lhota, senior managing director and co-head of fixed income, says the business is important to the company and remains a focus for Knight.
“Urban Financial Group continues to be an important part of Knight,” Lhota said in an email to RMD. “We are extremely pleased with Urban’s performance month after month. The team is working diligently and continues to hit record-breaking numbers—in July they funded over $150 million in loan volume and we anticipate that August numbers will be slightly higher. They remain focused on the business and we want to thank all of Urban’s employees and customers for their support.”
Knight this week appointed Fred Tomczyk, TD Ameritrade Holding Corp. CEO; Blackstone Group managing director Martin Brand; and Matthew Nimetz, advisory director of General Atlantic LLC. The new board members have been appointed as a result of company ownership changes following a $400 million-plus loss due to a trading software glitch in early August. Following the loss, Wall Street peers Blackstone Group LP, Getco, and TD Ameritrade Holding Corp, Stifel Nicolas, Jefferies Group Inc and Stephens Inc. gained a 73% stake in the company through the purchase of $400 million convertible preferred stock.
“Key questions facing them and the rest of the leadership are whether to stick with businesses that have struggled in recent years,” WSJ writes, “such as its institutional sales and trading division, or cut them back to better focus on Knight’s bread-and-butter stock-trading franchises, according to people close to the firm’s new investors as well as analysts.”
Urban has stated previously it remains committed to its reverse mortgage business in light of the August losses.
Editor’s note: This post has been updated in paragraphs 1, 4-5 with comments from Knight Capital in response to the WSJ report.
Written by Elizabeth Ecker