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Updated with comments from Fitch Ratings, CRT Capital Group analyst Keven Starke, and market close informatoin.
NEW YORK (
Knight Capital Group (KCG - Get Report) bounced back in a big way on Friday, following a report that the firm had obtained a credit line allowing it to operate for another day.
The shares shot up 57% to close at $4.05, amid a very strong market rally on surprisingly strong job growth numbers, after the Wall Street Journal reported that Knight Capital had told its clients that the company had obtained a new credit line, allowing it to continue processing trades for its customers for another day.
Shares of the Jersey City, N.J., market maker and facilitator of electronic transactions for wholesale trading clients announced dropped 63% on Thursday, after Knight Capital announced a pretax loss of $440 million, after glitches in its trading software on Wednesday "sent into the market a ton of orders, all erroneous, so we ended up with a large error position which we had to sort through the balance of the day," according to Knight Capital CEO Thomas Joyce, who was interviewed on Bloomberg TV.
Knight Capital announced early Thursday that it was "actively pursuing its strategic and financing alternatives to strengthen its capital base."
KBW analyst Niamh Alexander had said on Thursday that "the Board needs to sell this company ASAP in our opinion if it can't get private financing to shore up capital," because "continuing independently will be challenging without more capital."
Potential acquirers for Knight Capital, according to Alexander, include
Goldman Sachs (GS),
Credit Suisse (CS), and
Cantor Fitzgerald, all of which "recently expressed interest to expand into wholesaling organically." The analyst said that KBW would potentially consider
JPMorgan Chase (JPM - Get Report),
Interactive Brokers Group (IBKR), or
Jefferies (JEF), to be buyers "as they would likely be interested in the trading technology and the retail wholesale network while also potentially eliminating a competitor in the trade execution institutional business."
While investors were clearly breathing a sigh of relief -- pushing Knight Capital's shares well above the
takeout value of $3.40 estimated by Stifel Nicolaus analyst Matthew Heinz on Thursday -- other Wall Street firms were shying away, with the Journal reporting that
TD Ameritrade (AMTD) and
E*Trade (ETFCO) we not routing trade orders through Knight Capital.
Knight Capital in June renewed a $200 million credit line with a group of banks led by
U.S. Bancorp (USB) subsidiary
U.S. Bank, NA, that included bank subsidiaries
of Bank of America (BAC),
Bank of Montreal (BMO), and
JPMorgan Chase (JPM - Get Report).