Knight Capital looks for cash after $440m error

Michael Bow
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US firm Knight Capital, the company behind a software glitch which led to trades being cancelled in New York on Wednesday, was scrambling to raise capital last night after it revealed the error had accidentally wiped $440m (£283m) off the company’s balance sheet.

The New Jersey based equity broker, which placed the bad trades in error after its automatic systems malfunctioned, was looking to secure liquidity from creditors and investors to keep the firm afloat, its chief executive Thomas Joyce said.

Yesterday the firm said it had made a pre-tax loss of $440m due to the bad trades – about four times what it earned last year.

“We have all hands on deck and we understand what the issues are,” Joyce told Bloomberg TV. “We are talking to a lot of capable people, people who are in touch with situations like this.”

Shares in the company have fallen 75 per cent since the error on Wednesday, when the NYSE placed 148 listed stocks under review after prices starting fluctuating wildly.

Analysts said last night the stricken company would be seeking an emergency short-term loan from creditors or a capital infusion deal before negotiating a purchase with rival firms over the weekend.

A New York based analyst, who wished to remain anonymous, said: “Either they find a buyer or it ends up in liquidation. It’s extremely difficult to earn their way out of this.”

Stifel Nicolaus analyst Matthew Heinz said: “This is going to be a distressed sale and there’s going to be a haircut on what they sell.”

Raymond James analyst Patrick O’Shaughnessy added: “They need to have something lined up by the end of the weekend. They need to shore up liquidity to survive in the near term. But their assets are quite liquid if they need to convert them into cash. This is not a Lehman situation.”

Knight Capital was also one of the market makers involved in the botched $10bn Facebook float earlier this year, when a glitch delayed the opening of trading in the shares.