Knight Capital explores asset sale

Knight Capital is exploring a sale of underperforming assets as the US electronic trading firm looks to dispose of certain units ahead of its planned takeover by rival Getco, people familiar have said.

The company brought on Bank of America Merrill Lynch last month to seek out potential buyers for its institutional bond trading business and mortgage securitisation unit, these people said.

The move marks a departure from Knight’s attempts of the last few years to gain traction in asset classes beyond its core business of handling stock trades for clients.

One person added that Knight had been independently pursuing a full restructuring of its business even as it emerged as an acquisition target late last year.

Getco won a bidding war for Knight, which was crippled by devastating $461.1m trading loss in August, last month in a deal worth $1.8bn that is set to create a dominant trading company.

Knight acquired Libertas Holdings, a small brokerage, for $75m in 2008 and began trading bonds on behalf of institutions. The unit has come under pressure of late after initially gaining traction as firms were reluctant to trade with large Wall Street banks during the height of the financial crisis.

The company then acquired Urban Financial Group in 2010 as it looked to mortgage securitisation as another opportunity to expand.

A potential sale of the units comes as Knight, which employs about 1,500 people, said it would shutter its correspondent clearing business and consolidate its equities sales teams. Those moves have resulted in about 40 lay-offs so far, one person added. Last week, Knight reported that fourth-quarter earnings plummeted by 84 per cent from the same period a year ago.

Knight and Bank of America declined to comment.

News of the sale exploration was earlier reported by the Wall Street Journal.