Knight Capital Group Inc. (KCG), the market maker that’s being acquired by Getco LLC, plans to sell its credit-brokerage unit to Stifel Financial Corp. (SF), according to six people with knowledge of the matter.
The team includes investment-grade, high-yield and asset- and mortgage-backed debt brokers in the U.S. and Europe, said the people, who asked not to be identified before an announcement set for as soon as tomorrow.
Knight hired Bank of America Corp. to help sell the debt unit after the Jersey City, New Jersey-based firm’s computers generated a flood of errant orders last year that brought it to the brink of bankruptcy. Stifel, which has spent at least $1.7 billion on 24 acquisitions since Ron Kruszewski became chief executive officer in 1997, is seeking to grab a bigger share of the debt-brokering business as rivals retreat with lower yields and volatility reducing commissions.
“There’s this huge consolidation” of U.S. regional and local brokerages that cater to mid-size companies, Kruszewski, 54, said in an interview last month at the firm’s St. Louis headquarters. His goal is to build Stifel into a “bigger version of what we are today” by adding employees and letting the balance sheet grow along with it, he said.
Knight sought to sell the unit, led by Al Lhota and Bob Lyons in New York, in part to reduce costs from long-term property leases, three of the people said. The firm plans to retain BondPoint, the electronic system for corporate, municipal and government debt, one of the people said.
Jonathan Mairs, a Knight spokesman, and John Yiannacopoulos of Charlotte, North Carolina-based Bank of America declined to comment on the agreement. Sarah Anderson at Stifel didn’t respond to e-mail and phone messages seeking comment.
Knight agreed in December to be purchased by Getco in a $1.4 billion deal, ending its 17 years of independence. Knight, which lost more than $450 million from the trading glitches, was bailed out by six financial firms including Getco and Stifel in August. Suitors for the debt team included Guggenheim Partners LLC, Canaccord Financial Inc. and Sterne Agee & Leach Inc., people with knowledge of the matter said in January.
Stifel, which is set to release fourth-quarter results after the close of trading tomorrow, managed $411.6 million of dollar-denominated junk-bond sales last year, up from $40.25 million in 2011 and none in 2010, according to data compiled by Bloomberg.
Knight was among firms that bolstered its debt unit in 2009 following the worst financial crisis since the Great Depression, hiring Lhota as head of high-yield, distressed and bank loan sales. Earlier, he headed junk-bond teams at RBS Greenwich Capital Markets and UBS AG.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.
Knight started a European credit trading and sales group led by Neil Robertson that included 14 people, according to a June 2009 statement. At least half of them had previously worked at UBS.
Chapdelaine & Co., Citadel LLC and Ticonderoga Securities LLC have shuttered or scaled back credit units since 2010 as the biggest banks regain their dominance over debt markets.
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