Wall Street trading giant Virtu cut staff by half and laid in to a $1.4 billion acquisition — now it can't wait for market chaos (VIRT)

The writing was on the wall from the beginning.

When Virtu Financial — which had grown to become one of the largest high-speed trading firms in less than a decade — acquired rival KCG in July, there was an understanding that costs and staff were going to be cut fast. Virtu had spent $1.4 billion on its purchase and was already known for a lean business model. Virtu had just 150 staff, compared with 1,100 at KCG. That's to say nothing of KCG's old-fashioned flash with cash reputation.

So there were some easy targets for Virtu chief executive Doug Cifu.

n an earnings call to discuss the results, Cifu said KCG's technology was a mess, it lacked discipline around capital allocation, had multiple unprofitable units, and missed opportunities to expand in areas of strength.

The ultimate vision of the acquisition, to "harmonize the strengths of both legacy firms," has not changed since the deal closed in July, Cifu said. The backdrop looks the same as well. High-frequency traders continue to struggle amid an environment of low volatility in which the big price swings that traders profit from are harder to come by.

Cifu, however, says the newly combined company is even more optimistic about the merger than it was when the deal was first announced in April. Since the deal closed, Virtu has done the following:

Cifu said he expects Virtu will achieve $262 million in gross synergies in 2018, adding that headcount reductions the firm has undertaken will have little impact on revenues.

"As we have previously noted many of the departed employees worked in redundant cost centers or offices that generated little to no revenue, or even lost money trading," Cifu said.

It's not just a question of cutting costs. Cifu also mentioned a "dozens" of new projects underway at the firm that have emerged from collaborations between Virtu and KCG. The company has "generated approximately $14 million of incremental annualized adjusted net-trading income from these growth initiatives alone," according to Cifu.

He added that "the size and scoop of these initiatives is many multiples of what has been achieved to date."

All this has been achieved in a period of historically low volatility, Cifu said, adding that he's "really excited about when - not if but when - volatility comes back." He said:

"When you have a firm that has its fixed cost base under control, and I think we put our money where our mouth is today, and you have a firm that can demonstrably generate net trading revenue in muted volatility environment, you have a great model. And the model is, in a famine, we can generate significant returns and then the model scales exceptionally well. That's always been the model of legacy Virtu, and it's the model of the combined firm going forward."