Segment Analysis

6 Months Ended

Jun. 30, 2011

Segment Analysis

Segment Analysis

23. Segment Analysis

Currently, our business model operates through the following five business segments:

· MBS/ABS & Rates — This division provides sales, trading, research and advisory services on a wide range of mortgage and asset-backed securities, U.S. Treasury and government agency securities, structured products such as CLOs and CDOs, whole loans, and other securities. Revenues are generated from spreads on principal transactions executed to facilitate trades for clients. Revenues are also generated from interest income on securities held primarily for the purpose of facilitating customer trading.

· Corporate Credit — This division provides analysis, sales and trading on a wide range of debt securities including bank debt and loans, investment grade debt, high-yield debt, treasuries, convertibles, distressed debt, preferred debt, emerging market debt and reorganization equities to corporate and institutional investor clients. Revenues are generated primarily from spreads on principal and riskless principal transactions, as well as commissions on trades executed on behalf of clients. In addition, revenues are also generated on a smaller scale from interest income on securities held for the primary purpose of facilitating customer trading. The division also provides trade execution services, liability management, corporate debt repurchase programs and new issue distributions.

· Investment Banking — This division offers a broad range of financial advisory services in regard to mergers and acquisitions, restructurings and recapitalizations and capital markets related matters. This division provides focused, tailored advice and services to companies considering the sale or acquisition of a division, certain assets or the entire company and also offers expertise on matters such as corporate defense takeover advisory and other special situations. In addition, the division provides debt and equity capital raising solutions for corporate clients which take into consideration the overall impact of such solutions on the client, including with respect to capital structure, corporate strategic initiatives and investor base.

· Equities — This division provides timely and focused research in selected industry sectors. The division identifies value-added investment ideas through in-depth primary research on sectors and individual securities with a focus on providing money-making as well as money-saving ideas to institutional clients. Revenues are generated primarily through cash commissions on customer trades in equity securities and hard-dollar fees for research. In addition, revenues are generated on riskless principal transactions through the division’s market making activities in certain equity securities.

· ClearPoint — This division originates, processes and underwrites single and multi-family residential mortgage loans within 37 states across the country. The loans are underwritten using standards prescribed by conventional mortgage lenders and loan buyers such as the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Revenues are generated primarily from the sale of the residential mortgage loans with servicing released.

The Company’s sales and trading revenues consist of revenues derived from commissions, principal transactions and other fee related revenues.  Investment banking consists of revenues derived from capital raising and financial advisory services.  Investment gains/(losses) primarily reflect gains and losses on the Company’s FATV investment.

Items of revenues and expenses not allocated to one of the reportable segments are aggregated under the caption “Other” in the table below.  Previously reported within “Other” were the operating results of ClearPoint which have now been separately disclosed due to the amount of ClearPoint’s net revenues in relation to total net revenues.  The financial information related to the six months ended June 30, 2011 has been updated for this change.  Included within “Other” are investment gains/(losses) and fees related to the Company’s investment in and management of FATV.  In addition, “Other” includes expenses not directly associated with specific reportable segments, including amortization of intangible assets from business acquisitions and costs related to corporate overhead and support, such as various fees associated with financing, legal and settlement expenses.

Information concerning operations in these reportable segments are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands of dollars)	2011			2010			2011			2010
Net revenues
MBS/ABS & Rates
Sales and trading	$	12,246		$	14,705		$	52,997		$	39,579
Interest income	13,907			12,109			28,196			27,769
Interest expense	(3,512		)	(3,290		)	(7,018		)	(7,641		)
Total MBS/ABS & Rates	22,641			23,524			74,175			59,707
Corporate Credit
Sales and trading	14,681			18,989			32,320			40,797
Interest income	386			472			848			663
Interest expense	(172		)	(189		)	(316		)	(286		)
Total Corporate Credit	14,895			19,272			32,852			41,174
Equities
Sales and trading	4,930			5,813			10,219			10,495
Interest income	1			5			5			9
Interest expense	(2		)	(1		)	(25		)	(1		)
Total Equities	4,929			5,817			10,199			10,503
Investment Banking
Investment Banking	10,041			6,827			20,364			21,925
Other	—			22			—			92
Total Investment Banking	10,041			6,849			20,364			22,017
ClearPoint
Sales and trading	6,990			—			13,323			—
Interest income	587			—			902			—
Interest expense	(569		)	—			(859		)	—
Total ClearPoint	7,008			—			13,366			—
Total net revenues – Reportable segments	59,514			55,462			150,956			133,401
Other
Investment gains/(losses), net	368			(1,662		)	(318		)	(1,512		)
Sales and trading	225			220			425			167
Gain from bargain purchase – ClearPoint acquisition	—			—			2,330			—
Interest income	3			(207		)	5			99
Interest expense	(827		)	(848		)	(1,420		)	(2,178		)
Interest expense – Intersegment allocations	2,025			1,568			3,989			3,859
Total Other	1,794			(929		)	5,011			435
Total net revenues	$	61,308		$	54,533		$	155,967		$	133,836
(Loss)/income before income taxes
MBS/ABS & Rates	$	6,063		$	6,894		$	24,855		$	21,776
Corporate Credit	653			1,221			1,658			2,824
Equities	(316		)	(219		)	(2,599		)	(48		)
Investment Banking	4,185			560			6,727			5,714
ClearPoint	(1,450		)	—			(2,572		)	—
Income before income taxes – Reportable segments	$	9,135		$	8,456		$	28,069		$	30,266
Other	(21,463		)	(15,493		)	(28,132		)	(39,357		)
Loss before income taxes	$	(12,328	)	$	(7,037	)	$	(63	)	$	(9,091	)

The Company’s segments’ financial policies are the same as those described in Note 1 within the footnotes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  Assets have not been reported by segment, as such information is not utilized by the chief operating decision maker.  Substantially all assets and operations are located in the United States.