Knight Capital CEO bears biggest loss with $17m hit
FALL IN MARKET MAKER’S SHARE VALUE BY 70% REDUCES WORTH OF STOCK HELD BY JOYCE
While Knight Capital Group Inc. chief executive officer Thomas Joyce helped steer the company from insolvency, the company’s travails have come at a personal cost of $17 million (Dh62.4 million).
Joyce, who held 1.3 per cent of Knight as of January 31, bears the biggest loss in a group of executives who own 1.8 per cent of the company’s tradable shares, according to data compiled by Bloomberg based on holdings from government filings. The $400 million bailout of the firm that handles about 10 per cent of market making in US-listed stocks reduces the stake of existing shareholders by more than 70 per cent.
Knight shares plunged 70 per cent since a programming malfunction spewed orders through exchanges on August 1 and saddled the company with a $440 million loss. The rescue means firms, including Jefferies Group Inc., Blackstone Group LP, and TD Ameritrade Holding Corp., own a controlling stake in the Jersey City, New Jersey-based market maker. Joyce’s ownership compares with 6 per cent of Jefferies stock for CEO Richard B. Handler, data compiled by Bloomberg show.
“Management ownership, although it doesn’t guarantee success, is an important ingredient,” Eric Marshall, co-manager of the Hodges Small Cap Fund and the director of research at Hodges Capital Management Inc., said from Dallas yesterday. Hodges has about $700 million in assets. “That’s something we put a lot of consideration to, especially in the financial services industry.”
Proportion of shares
The proportion of tradable shares owned by Knight executives compares with a median of 5.9 per cent for brokerages and investment banks in the Russell 3000 Index, Bloomberg data show. The Knight proportion goes up to 4.2 per cent, including shares that have been issued and can’t be sold, with Joyce responsible for about 57 per cent of the total, according to data compiled by Bloomberg and InsiderScore.com.
Knight’s market value was $301.5 million, compared with the $820 million paper value for the 267 million shares represented by convertible securities based on yesterday’s closing price.
Stock owned by George Sohos, the head of market making, has fallen by $4.7 million since July 31, according to data on tradable and restricted shares compiled by Insiderscore and Bloomberg. Steven Sadoff, Knight’s global head of operations, saw his stake slump by $3.4 million. The value of the stake held by chief financial officer Steven Bisgay, who owns 117,495 tradable shares and 139,177 restricted, declined by $1.9 million, the data show.
Knight shares tumbled 24 per cent to $3.07 in New York yesterday as investors prepared for hundreds of millions of shares to enter the market via convertible securities.
“It’s possible that if management had a larger stake in the company, that they could have gone for a tougher deal,” Michael Wong, a Chicagobased analyst with Morningstar Inc., said, referring to the bailout Knight received. “That said, it was an emergency situation. Joyce came out and said it was the best deal that could be struck.”
Six of Knight’s seven board members are independent and own shares, according to data compiled by Bloomberg.