Segment Analysis

9 Months Ended

Sep. 30, 2011

Segment Analysis

Segment Analysis

26. Segment Analysis

Currently, our business model operates through the following four 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. The division also provides trade execution services, liability management, corporate debt repurchase programs and new issue distributions. 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.

· Investment Banking — This division was realigned on August 22, 2011 to enhance the Company’s position as a leading advisor and to deliver capital raising capabilities of its fixed income businesses to corporate clients. The division is being reorganized around key industry verticals, including real estate, financial services, aerospace and defense, general industrial and financial sponsor coverage. The realignment included the termination of 32 investment banking employees as well as certain administrative positions.

· ClearPoint — This division originates, processes and underwrites single and multi-family residential mortgage loans within 41 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.

The Equities segment results have been reclassified as a discontinued operation and is no longer reported below.  In connection with this development, the goodwill and intangible asset impairment and any previously reported intangible asset amortization related to the Equities reporting unit which was included within “Other” has also been reclassified within discontinued operations.  The realignment of the Investment Banking segment had no impact on comparability to prior period results.

Items of revenues and expenses not allocated to one of the reportable segments are aggregated under the caption “Other” in the table below.  Included within “Other” are investment gains/(losses) and fees related to the Company’s investment in and management of FATV.  In addition, “Other” reflects expenses not directly associated with specific reportable segments, including costs related to corporate overhead and support, such as various fees associated with financing, legal and settlement expenses and amortization of intangible assets from business acquisitions not reported within discontinued operations.

Information concerning operations in these reportable segments are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands of dollars)	2011			2010			2011			2010
Net revenues
MBS/ABS & Rates
Sales and trading	$	(191	)	$	15,568		$	52,806		$	55,147
Interest income	15,178			13,210			43,374			40,979
Interest expense	(3,531		)	(3,490		)	(10,549		)	(11,131		)
Total MBS/ABS & Rates	11,456			25,288			85,631			84,995
Corporate Credit
Sales and trading	15,514			20,136			47,833			60,933
Interest income	321			970			1,169			1,633
Interest expense	(140		)	(195		)	(456		)	(481		)
Total Corporate Credit	15,695			20,911			48,546			62,085
Investment Banking
Investment Banking	9,359			11,765			29,724			33,689
Other	—			—			—			90
Total Investment Banking	9,359			11,765			29,724			33,779
ClearPoint
Sales and trading	12,710			—			26,033			—
Interest income	746			—			1,648			—
Interest expense	(713		)	—			(1,572		)	—
Total ClearPoint	12,743			—			26,109			—
Total net revenues – Reportable segments	49,253			57,964			190,010			180,859
Other
Investment gains/(losses), net	2,857			979			2,539			(533		)
Sales and trading	338			206			761			373
Gain from bargain purchase – ClearPoint acquisition	—			—			2,330			—
Interest income	4			(51		)	10			49
Interest expense	(28		)	(1,194		)	(1,447		)	(3,370		)
Interest expense – Intersegment allocations	1,740			1,960			5,729			5,818
Total Other	4,911			1,900			9,922			2,337
Total net revenues	$	54,164		$	59,864		$	199,932		$	183,196
Income/(loss)from continuing operations before income taxes
MBS/ABS & Rates	$	3,288		$	7,046		$	28,143		$	28,822
Corporate Credit	3,481			1,565			5,139			4,389
Investment Banking	(479		)	3,726			6,250			9,440
ClearPoint	(335		)	—			(2,907		)	—
Income from continuing operations before income taxes – Reportable segments	$	5,955		$	12,337		$	36,625		$	42,651
Other	(84,740		)	(12,669		)	(98,265		)	(51,668		)
Loss from continuing operations before income taxes	$	(78,785	)	$	(332	)	$	(61,640	)	$	(9,017	)

Refer to Note 25 herein for information related to the Company’s Equities segment which is being reported as a discontinued operation.

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.