Knight Capital boss Tom Joyce reached a deal to bail out his embattled firm last night — corralling a group of investors that will pony up much-needed capital — and allow it to open for business this morning.
The group of six corporate saviors agreed last night to invest roughly $400 million.
Joyce had been scrambling all weekend to find partners willing to fill a $440 million hole blown through Knight’s balance sheet after a computer glitch Wednesday.
The cash will come from TD Ameritrade; rival market maker Getco, based in Chicago; Jefferies Group; the Blackstone Group; Stifel Nicolaus; and Stephens Inc. The group will then own a majority stake in the Jersey City firm.
Knight Capital needed to reach a deal before the markets open today because the 150 different equities that traded wildly in the opening hour of business Wednesday — thanks to the computer glitch — will settle then and Knight will have to come up with the cash to cover the money-losing trades.
After a frantic weekend of talks, Joyce cobbled together the group, which will fork over the cash in exchange for convertible securities that would give it about 70 percent of the company, according to several reports.
The reports said the white knights would get Knight Capital shares at $1.50 a piece — severely diluting current shareholders.
Knight Capital shares closed at $4.05 on Friday, jumping 57 percent on the back of news the firm was fighting to stay afloat and remain independent. They had closed at $10.33 the day prior to the computer glitch — a meltdown that nearly cost Joyce his firm.
It still may cost him the firm, as the deal had not been signed at press time. Calls to Knight Capital were not returned.
Knight’s New Jersey headquarters were a beehive of activity yesterday. TD Ameritrade CEO Fred Tomcyzk was spotted by reporters exiting Knight’s offices.
One of Joyce’s key concerns over the weekend was to strike a deal that protects Knight Capital’s more than 1,400 employees, sources noted. Knight is a significant cog in Wall Street’s trading machinery, accounting for 10 percent of all equity trades.
The failure to reach a deal and the collapse of Knight would not have greatly affected stock trading, but it would have shaken faith in how the markets work.
In fact, Knight’s current state of disrepair has raised fresh fears about computerized trading systems that account for the vast majority of everyday trading on the Street, and it comes just months after Nasdaq’s screw-up of Facebook’s much-hyped stock offering.