The Math Behind Egan-Jones' Downgrade Of Knight To Triple Hooks

Tyler Durden's picture


Moments ago, Egan Jones downgraded Knight Capital again, having downgraded the firm yesterday, from B- to CCC. The reason: the math just does not work out (pretty much as is the case with Europe, and the entire Welfare state developed world paradigm, but that's a different story). Full logic below.

Tough math - KCG probably needs $600M of equity capital but its market cap is only $300M and therefore probably can only raise $80M to $90M using normal rules of thumb. A sale of the firm would take 90 days under good conditions and therefore only an equity or quasi-equity investment makes sense. However, with weakness in the markets, there is likely to be few likely buyers. In a good year KCG earns $115M and therefore the $440M loss is debilitating. (Watch for the secondary losses related the loss of client confidence.) Net revs for the June quarter declined by 13% YoY. The Market-Making segment revenues were down 21% with pre-tax income down 84% from $39.2M to $5.9M due to trading losses related to the Facebook IPO. June quarter oper inc was down from $29.5M to $5.4M. We are downgrading

Source: EJ

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Thu, 08/02/2012 - 13:57 | 2673127 Seasmoke
Seasmoke's picture

someone will buy it for pennies and not have to pay any taxes for 4 years

Thu, 08/02/2012 - 14:10 | 2673200 Divided States ...
Divided States of America's picture

Nice, the big banks just took out another competitor. The list of smaller financial corpses are piling up.



Thu, 08/02/2012 - 15:47 | 2673647 AldousHuxley
AldousHuxley's picture

New Jersey has a lot of shit piled up.

Goldman Sachs moved to Jersey at hudson street right when they were full of shit.


Manhattan can only pile so much shit.

Thu, 08/02/2012 - 16:44 | 2673951 Papasmurf
Papasmurf's picture

The big banks wrote the algo. 

Thu, 08/02/2012 - 21:43 | 2674614 iinthesky
iinthesky's picture

Gives a new meaning to Facefuck

Thu, 08/02/2012 - 14:14 | 2673223 jmcadg
jmcadg's picture

That'll be Mitt Romney then.

Thu, 08/02/2012 - 14:15 | 2673225 Silver Bug
Silver Bug's picture

There will be many many more downgrades to come.

Thu, 08/02/2012 - 14:32 | 2673305 LMAOLORI
LMAOLORI's picture



'Knight-mare': Trading Glitches May Just Get Worse

Thu, 08/02/2012 - 15:03 | 2673419 nonclaim
nonclaim's picture

"someone will buy it for pennies"


The clients are gone or going, the best employees are the first to jump to a better offer and the name/brand is now of incompetence.

What is left, negative equity and unknown liabilities, sounds like a great deal...

Thu, 08/02/2012 - 22:02 | 2674656 Buck Johnson
Buck Johnson's picture

It's done, truly done.  By tomorrow afternoon it could be delisted.

Thu, 08/02/2012 - 13:58 | 2673132 bigwavedave
bigwavedave's picture


Thu, 08/02/2012 - 13:58 | 2673133 DrDinkus
DrDinkus's picture

Been a satisfying day to see the demise of NITE and Draghi look like a buffoon...egan WHO?

Thu, 08/02/2012 - 14:06 | 2673140 Cognitive Dissonance
Cognitive Dissonance's picture

"The reason: the math just does not work out......."

Excuse me Tyler, but clearly you have not updated your "New New Math" financial textbook to the latest "hopium" edition, edited by Krugman.

For only four credit card charges of $199.99 each I'll be happy to ship my good-as-new used copy to you pronto. Have your people get in touch with my people.

But hurry. The Limerick King was eyeing my copy when he came over last night and got drunk.....again. (Just kidding Limerick King. You can get drunk any where you want.)  


Thu, 08/02/2012 - 14:39 | 2673336 DOT
DOT's picture

"The reason: the math just does not work out......."

That's New,New, Flabby Math CD.    ;

Thu, 08/02/2012 - 15:04 | 2673425 azzhatter
azzhatter's picture

what is this "math" you speak of. It's irrelevant

Thu, 08/02/2012 - 14:41 | 2673339 AlaricBalth
AlaricBalth's picture

Hey CD. Why am I seeing charges from Spearmint Rhino suddenly showing up on my credit card bill. You said four charges @ $199.99 each. $7,845.50 is alot of money for my textbook, which has not been received, I might add.

Thu, 08/02/2012 - 14:48 | 2673371 Cognitive Dissonance
Cognitive Dissonance's picture

This droid CD is not the CD you're looking for. :)

Thu, 08/02/2012 - 14:01 | 2673144 bdc63
bdc63's picture

roadkill.  get ready to watch the vultures as they start feasting on the carcass ...

Thu, 08/02/2012 - 14:13 | 2673218 Papasmurf
Papasmurf's picture

I think the feast is over.  Vultures picked them over during coffee hour yesterday morning.

Thu, 08/02/2012 - 14:00 | 2673147 Conman
Conman's picture

Solution let them merge with another robot shop and let them get TBTF. Solved!

Thu, 08/02/2012 - 14:00 | 2673149 buzzsaw99
buzzsaw99's picture

they got facebooked too? lololololol

Thu, 08/02/2012 - 14:08 | 2673191 Cangaroo.TNT
Cangaroo.TNT's picture

Speaking of which, love the flat-line action at $19.99-$20.00.  You know it just wants to break to the downside in a bad way, but they [MS] are putting up a good fight to prevent that.

Thu, 08/02/2012 - 14:14 | 2673221 buzzsaw99
buzzsaw99's picture

it feels like 1999 all over again. lulz

Thu, 08/02/2012 - 14:11 | 2673206 walküre
walküre's picture

The Zuck slayed The Knight

Thu, 08/02/2012 - 14:12 | 2673211 Cangaroo.TNT
Cangaroo.TNT's picture

Party like it's 19.99

Thu, 08/02/2012 - 14:17 | 2673238 walküre
walküre's picture

W.Banzai could do a number on this

Thu, 08/02/2012 - 14:00 | 2673150 fonzannoon
fonzannoon's picture

What consequences are there to the broad marketplace if this company goes under? Are there any?

Thu, 08/02/2012 - 14:11 | 2673207 walküre
walküre's picture

The end of the OTC as you know it.

Thu, 08/02/2012 - 14:00 | 2673151 Dr. Engali
Dr. Engali's picture

There won't be anything left to downgrade come Monday. If they make through Friday I will be surprised

Thu, 08/02/2012 - 14:00 | 2673153 LetThemEatRand
LetThemEatRand's picture

Knight.  "The science of trading.  The standard of trust."

How I love Orwellian corporate bullshit speak when it is exposed in its full glory.

Thu, 08/02/2012 - 14:10 | 2673205 Miss Expectations
Miss Expectations's picture

The Second Mile is a nonprofit organization serving the youth of Pennsylvania. At The Second Mile, we are committed to helping young people achieve their potential as individuals and as community members and providing education and support for their parents and youth service professionals.

Thu, 08/02/2012 - 14:29 | 2673293 alarm bell
alarm bell's picture

Serving is what they call it now.  huh

Thu, 08/02/2012 - 14:02 | 2673162 francois
francois's picture

We have a body, (Knight),  motive (profit from foreknowledge of what was going to happen), suspects (insiders at Knight, anyone with the hacking ability to do this).

There are no tracks, since the suspects are hiding amongst all the other people that were trading these events.

Could the same serial killers be at work taking the last profit out of our carcass of an economy?

WHere is Hercule Poroit when you need him?

Thu, 08/02/2012 - 16:15 | 2673776 rufusbird
rufusbird's picture

Walking in circles repeating to himself, "there are no coincidences".

Thu, 08/02/2012 - 14:05 | 2673172 The Gooch
The Gooch's picture

OT but had to...

London mayor get's stuck on Olympic zipline...

Thu, 08/02/2012 - 14:05 | 2673178 shovelhead
shovelhead's picture

From a $10 Cohiba to a stogie in the gutter in about the same amount of time.

Death got no mercy in this land.

Thu, 08/02/2012 - 14:07 | 2673185 Winston Churchill
Winston Churchill's picture



You are the man.

Thu, 08/02/2012 - 14:08 | 2673193 Jlmadyson
Jlmadyson's picture

Fed plus ECB math might work.

Thu, 08/02/2012 - 14:09 | 2673195 Nonexistent Uni...
Nonexistent Uninvented God's picture

CCC? More like  B===D(_._)



Thu, 08/02/2012 - 14:50 | 2673376 NotApplicable
NotApplicable's picture

Actually, I'd say it's more like  B===D(_O_)

Thu, 08/02/2012 - 14:10 | 2673199 ArrestBobRubin
ArrestBobRubin's picture

This stinks like a hit mates.

As always:

1) Cui bono? Who benefits?

2) FtM: follow the money

Thu, 08/02/2012 - 14:15 | 2673230 walküre
walküre's picture


Get Your Money Out Now

The biggest MM goes belly up. The market is about to be closed.


Thu, 08/02/2012 - 14:12 | 2673212 monopoly
monopoly's picture

And Poof! Its gone.

Thu, 08/02/2012 - 14:14 | 2673222 whoopsing
whoopsing's picture

CCCorzined !

Thu, 08/02/2012 - 14:15 | 2673226 Cult_of_Reason
Cult_of_Reason's picture

I am pulling my money from Knight (have two indirect futures accounts with them). It is better to be safe than MF Global sorry. I refuse to be Corzined. I want my money now! No ifs or buts.

Thu, 08/02/2012 - 14:16 | 2673233 walküre
walküre's picture

too late

Thu, 08/02/2012 - 14:20 | 2673248 Cult_of_Reason
Cult_of_Reason's picture

No, it is not. They told me "believe us" check is in the mail.

But seriously, I have money with Knight. Am I really screwed now? I talked to CFTC, Knight and Penson, all told me they are monitoring the funds.

Thu, 08/02/2012 - 14:34 | 2673311 Money 4 Nothing
Money 4 Nothing's picture

The Big Boys faces are in the money trough right now.. wait your turn Muppet..

Thu, 08/02/2012 - 14:51 | 2673383 Cult_of_Reason
Cult_of_Reason's picture

Covered and liquidated everything that I had through Knight, 100% in cash, requested everything to be wired out, trying to get my money out before they file for bankruptcy.

Thu, 08/02/2012 - 15:08 | 2673441 Cult_of_Reason
Cult_of_Reason's picture

Knight states that they are in "full compliance with our net capital requirements and we are in constant contact with the regulatory bodies" (whatever that means).

The guy told me that cash will go automatically to CFTC protected accounts (that suppose to be safe), but if you hold any positions overnight (as e-mini futures) you could find out that you do not have anything in the morning.

That was very encouraging (at least he was honest).




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