Knight Capital Q4 Profit Doubles Wall Street View
Wed Jan 16, 2008 6:02pm EST
BANGALORE (Reuters) - Financial services firm Knight Capital Group Inc's (NITE.O: Quote, Profile, Research) quarterly profit nearly doubled Wall Street's view, as trading volumes soared amid increased volatility in financial markets, sending shares up as much as 17 percent.
A turmoil in U.S. financial markets fueled by the subprime mortgage crisis and housing market slump has made the market more volatile, boosting trading volumes across asset classes.
"The results dramatically beat estimates and were driven by the company's automation and ability to make money in a highly volatile market," Richard Repetto, an analyst with Sandler O'Neill & Partners, said by phone.
Net income for the fourth quarter at the U.S. stock-trading firmwas $49.6 million, or 52 cents a share, compared with $47.4 million, or 45 cents a share, a year ago. Excluding items, earnings were 50 cents a share.
Revenue for the quarter was $257.3 million, of which revenue from the global markets segment, which provides trade execution services in a number of international securities, and fixed income instruments, was $220.9 million.
Analysts expected the company to earn 26 cents a share, excluding items, on revenue of $210.7 million, for the fourth quarter, according to Reuters Estimates.
The company's development of automated electronic and voice trading platforms allowed it to grow and diversify its revenue and client base, Chief Executive Thomas Joyce said in a statement.
Net trading revenue more than doubled to $112.7 million in the quarter.
New Jersey-based Knight Capital has two operating segments -- asset management and global markets segments -- and it operates its asset management business through its subsidiary Deephaven Capital Management LLC.
The performance of Knight Capital's global market segment partly offset the losses in its asset management business.
The asset management segment was flat, but the real upside came from the company's core trading business, or the global market segment, Sandler O'Neill's Repetto said.
"Looking ahead, we expect volatility to remain high with muted growth in trading volumes in 2008," CEO Joyce said in a conference call.
The credit market troubles will continue to play out as fears of a recession linger and the election year reaches a conclusion, Joyce added.
However, Goldman Sachs' Daniel Harris said pre-tax margin was significantly higher than investors had anticipated during the quarter, but the results might be challenging to maintain should volatility dampen.
DEEPHAVEN WOES
Deephaven, Knight's asset management business, posted a pre-tax operating loss of $426,000, for the quarter, taking a hit from the weakness in financial markets.
Asset management fees at Deephaven fell more than 60 percent to $28.2 million in the quarter. Deephaven returned about $19 million in fees during the quarter, as part of the funds' plan to compensate investors on loss-making funds.
Knight also said partners of Deephaven hedge fund notified on Jan. 10 their intention to exercise options to acquire 49 percent of the firm's equity.
Knight expects to launch a new account platform allowing retail brokerage firms and registered investment advisors to offer clients access to investment managers in the first quarter.
Shares of the company rose 17 percent to a high of $14.75, before falling back to trade up 14 percent at $14.27 in morning trade on the Nasdaq.
The stock had fallen about 10 percent in January before Wednesday's news as investors had expected a weak quarter for the dealer and asset manager.
(Additional reporting by Dinesh Nair; Editing by Pratish Narayanan) |
