Segment Analysis

3 Months Ended

Mar. 31, 2012

Segment Analysis

Segment Analysis

25.       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 changes in fair value and interest income on securities held in inventory.

·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 riskless principal transactions, and to a lesser extent, principal trading and commissions on trades executed on behalf of clients.  In addition, revenues are also generated on a smaller scale from interest income on securities held in inventory.

·Investment Banking — This division provides financial advisory and capital raising services in connection with mergers, acquisitions and other strategic matters.  The division is being realigned around existing M&A expertise, expanded capital markets capabilities and key industry verticals, including real estate, financial services, aerospace and defense, technology, media and telecom, general industrial and financial sponsor coverage. 

·ClearPoint — This division originates, processes and underwrites single and multi-family residential mortgage loans within 45 states.  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.

Prior period results have been revised to reclassify investment banking revenues and related expenses into the segments within which they are generated, as this is how the segments are currently evaluated.  Such revenues were all previously presented within the Investment Banking reportable segment.  In addition, prior period ClearPoint results, which were previously presented as a component of Other, have now been reclassified and separately disclosed for comparative purposes to current period results.  Prior period amounts were previously reported in Other due to the amount of ClearPoint’s net revenues in relation to total net revenues.

The Equities segment results have been reclassified as a discontinued operation and are no longer reported below.  In connection with this development, any previously reported intangible asset amortization related to the Equities reporting unit which was previously included within “Other” has also been reclassified within discontinued operations.

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 March 31,
(In thousands of dollars)	2012			2011
Net revenues
MBS/ABS & Rates
Sales and trading	$	8,004		$	40,751
Investment banking	237			172
Interest income	16,427			14,289
Interest expense	(4,337		)	(3,506		)
Total MBS/ABS & Rates	20,331			51,706
Corporate Credit
Sales and trading	19,777			17,639
Investment banking	1,907			2,507
Interest income	132			462
Interest expense	(99		)	(144		)
Total Corporate Credit	21,717			20,464
Investment Banking
Investment banking	4,533			7,644
Other	—			—
Total Investment Banking	4,533			7,644
ClearPoint
Sales and trading	15,183			6,333
Interest income	2,443			315
Interest expense	(2,081		)	(290		)
Total ClearPoint	15,545			6,358
Total net revenues — Reportable segments	$	62,126		$	86,172
Other
Investment gains/(losses), net	132			(686		)
Sales and trading	385			200
Gain from bargain purchase — ClearPoint acquisition	—			2,330
Interest income	202			2
Interest expense	(59		)	(593		)
Interest expense — Intersegment allocations	1,957			1,964
Total Other	2,617			3,217
Total net revenues	$	64,743		$	89,389
Income/(loss) before income taxes
MBS/ABS & Rates	$	5,487		$	18,865
Corporate Credit	(688		)	2,212
Investment Banking	579			1,263
ClearPoint	(2,853		)	(1,120		)
Income before income taxes — Reportable segments	$	2,525		$	21,220
Other	(7,807		)	(6,492		)
(Loss)/income before income taxes	$	(5,282	)	$	14,728

Information concerning the assets of these segments is as follows:

	March 31,			December 31,
(In thousands)	2012			2011
Total Assets
MBS/ABS & Rates	$	4,382,726		$	2,929,879
Corporate Credit	45,588			29,930
Investment Banking	10,125			10,916
ClearPoint	166,087			242,350
Total assets — Reportable segments	4,604,526			3,213,075
Other	109,891			126,358
Intersegment eliminations	(34,576		)	(35,877		)
Total assets	$	4,679,841		$	3,303,556

Substantially all assets and operations are located in the United States.

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, 2011.