Knight Reports Merger-Related Q2 Losses Following Urban Sale

Editors Note: A previous version of this article said that Urban was acquired by Walter Investment Management Corp., which is incorrect, the company was acquired by an investor group led by Brian Libman. 

Knight Capital Group, Inc. (NYSE:KCG) reported a 25% increase in revenues for the second quarter ended June 30, 2013 but a nearly $31 million net loss from expenses related to its merger with GETCO Holding Company, LLC to form KCG Holdings, Inc.

“The second quarter of 2013 was a period of intense activity during which the two firms together built the foundation for KCG,” said Daniel Coleman, Chief Executive Officer of KCG. “The teams deepened working relationships at all levels and collaborated to accomplish the steps necessary to complete the transaction. Of critical importance, individuals worked tirelessly to meet and exceed the levels of service that clients expect from an industry leader.”

Revenue for Knight—the former parent company of Urban Financial Group—rose 25% to $315.4 million in the second quarter.

The company recorded a GAAP net loss of $30.8 million, including a pre-tax loss from continuing operations of $21.8 million and a net loss from discontinued operations of $7.2 million. Knight also reported a net loss from continuing operations of $23.6 million, including $76.5 million of merger-related pre-tax expenses for compensation and professional fees, as well as a goodwill writedown.

During the third quarter, Knight announced the sale of Urban to an investor group led by Brian Libman for in a deal valued at $80 million. Urban, based in Tulsa, Okla., is one of the largest reverse mortgage lenders and has the biggest wholesale division in the industry.

The transaction is expected to close in the fourth quarter of 2013. In the meantime, the results of operations from Urban will be reported as discontinued operations, beginning in the third quarter.

Knight’s Global Execution Services segment, which includes reverse mortgage origination and securitization, generated revenues of $133.7 million in second quarter, during which the company “received stronger and more balanced contributions from the firm’s multi-asset class execution venues, institutional trading in U.S. equities and ETFs, and reverse mortgages.”

The results, says Knight, included a goodwill writedown associated with its reverse mortgage business of $17.8 million plus compensation from severance of $3.3 million.

View the earnings report here.

Written by Alyssa Gerace

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