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

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Seasmoke's picture

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

Divided States of America's picture

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



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.

jmcadg's picture

That'll be Mitt Romney then.

Silver Bug's picture

There will be many many more downgrades to come.

LMAOLORI's picture



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

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...

Buck Johnson's picture

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

DrDinkus's picture

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

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.)  


DOT's picture

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

That's New,New, Flabby Math CD.    ;

azzhatter's picture

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

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.

bdc63's picture

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

Papasmurf's picture

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

Conman's picture

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

buzzsaw99's picture

they got facebooked too? lololololol

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.

buzzsaw99's picture

it feels like 1999 all over again. lulz

walküre's picture

The Zuck slayed The Knight

walküre's picture

W.Banzai could do a number on this

fonzannoon's picture

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

walküre's picture

The end of the OTC as you know it.

Dr. Engali's picture

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

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.

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.

alarm bell's picture

Serving is what they call it now.  huh

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?

rufusbird's picture

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

The Gooch's picture

OT but had to...

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

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.

Winston Churchill's picture



You are the man.

Jlmadyson's picture

Fed plus ECB math might work.

Nonexistent Uninvented God's picture

CCC? More like  B===D(_._)



NotApplicable's picture

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

ArrestBobRubin's picture

This stinks like a hit mates.

As always:

1) Cui bono? Who benefits?

2) FtM: follow the money

walküre's picture


Get Your Money Out Now

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


monopoly's picture

And Poof! Its gone.

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.

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.

Money 4 Nothing's picture

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

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.

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).