[Update] WSJ: Knight’s Urban Financial, Potential Target for Trimming?

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.

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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

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  •  
    Executives at Bank of America, Wells Fargo, Financial Freedom, MetLife, and First National Bank all said “We are fully committed to the reverse mortgage business” right before shutting it down. It is the absolute, 100% certain, Lead Pipe Lock Official Kiss of Death in business. As soon as you hear it, fire up your networking skills and polish up your resume. I know some folks have worked for 2, 3 or even 4 of these companies over the past 18+ months. I wish you all the best.

  • My belief is, after watching what happened at BOA, Wells Fargo and most recently MetLife, that there is really no market for a large reverse mortgage companiy with its bloated management structure. These companies main assets really are its trained employees and they can be absorbed as is currently being done by companies like Security 1 and, oh yes, Urban Financial.

    • Ediey1,

      Then what are thoughts on all of the small companies which have left our industry as well?

      When one is blind to market trends and growing cancers then you hear cries about “it is management’s fault.”

      Is this a management problem or far worse?

      • The_Cynic

        If you can explain how a company can lose $400,000. in 30 minutes I will take a stab at answering your question.

      • Ediey1,

        If all they lost was $400,000 we would be having a different conversation.  What they lost was over $400,000,000.

        It is much easier to lose $400 thousand in 30 minutes than $400 million.

  • Security One Lending is different from Wells Fargo, BOA, Metlife,,,,We are not a bank and we only do Reverse Mortgages so we are committed to staying in this space. We have no other parts of our business to fall back on or investors telling us that its time to close…We are strong and moving forward

    • Do you not consider JAM, your Private Equity partners as investors? You do realize they will influence the future of S1L when its time to cash out, right?

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