Knight Capital Reports Profit Decline on Trading Slump

Knight Capital Group Inc., the market-maker that agreed to be sold to Getco LLC, reported earnings declined 84 percent after trading slowed and stock-price swings narrowed.

Fourth-quarter profit was $6.5 million, or 1 cent a share, compared with $40.2 million, or 43 cents, a year ago, the Jersey City, New Jersey-based company said today. Excluding some items, such as an investment writedown and legal fees related to the takeover, earnings were 5 cents a share, exceeding the 3-cent average analyst estimate, data compiled by Bloomberg show.

Volume is down 18 percent from a year ago, while volatility as measured by Chicago Board Options Exchange Volatility Index has reached its lowest level since the 2007 financial crisis, as corporate earnings and economic reports in the U.S. improved. Knight, whose market-making segment accounts for almost half of revenue, benefits from bigger price swings because it can capture more revenue with each transaction.

“The financial results for the quarter were negatively impacted by the steep year over year declines in consolidated U.S. equity volume and market volatility as well as the write-down of an investment and heightened professional fees,” Chief Executive Officer Thomas Joyce said in today’s statement.

Knight shares climbed 0.5 percent to $3.71 today, extending the 2013 gain to 5.7 percent, compared to 7.3 percent for the NYSE Arca Broker/Dealer Index that tracks the company and 10 of its rivals.

Average daily volume for U.S. exchange-listed stocks declined 18 percent to 6.07 billion from a year ago, while the VIX averaged 16.8 last quarter, compared with 29.9 in the last three months of 2011, data compiled by Bloomberg show.

Knight Revenue

While revenue declined 16 percent to $287.7 million, it also beat the average analyst estimate of $283.7 million.

Knight agreed to be sold to Getco in a $1.4 billion deal last month, after it lost more than $450 million when its computers generated a flood of erroneous orders in August.

Joyce said today the company plans to combine its full-service and electronic institutional equity sales team. The group will be led by Joseph Mazzella, head of institutional equities, and Albert Maasland, head of international. David Lehmann, head of electronic execution services, will leave Knight.

The company also said it will discontinue its correspondent clearing business and Steven Sadoff, who heads it, will leave. Sadoff had been in charge of operations and technology previously.