Concentrations of Credit and Liquidity Risk

6 Months Ended

Jun. 30, 2012

Concentrations of Credit and Liquidity Risk

Concentrations of Credit and Liquidity Risk

21.Concentrations of Credit and Liquidity Risk

Risks Related to ClearPoint and Other Related Matters

ClearPoint is subject to liquidity risk concentrations, as ClearPoint currently relies on a limited number of investors to purchase its originated mortgage loans and only two lenders to finance these activities.  If ClearPoint does not sell loans it originates from funds advanced under ClearPoint’s mortgage warehouse lines of credit within certain periods of time, the lenders can incrementally curtail, or reduce, such advances.  Under these circumstances, ClearPoint would be required to repay the curtailed amounts to the lenders prior to receiving any proceeds from the sale of the loans.  Failure of ClearPoint’s investors to continue purchasing its loans and/or a slowdown in such purchases could result in additional curtailments as the loans persist on the warehouse lines.  This could also decrease available capacity for funding new loans and satisfying ClearPoint’s unfunded loan commitments.  Curtailment exposure has significantly diminished as a result of actions taken by Clearpoint, including the implementation of loan origination limits and enhancements to its operational infrastructure, which have improved the pace at which loans are cleared.

Also, as further discussed in Note 15, “Secured Borrowings,” one of ClearPoint’s lenders elected not to renew its warehouse line, which expired on March 10, 2012, and the aggregate facility limit under ClearPoint’s remaining lines was reduced to $90 million on July 31, 2012.  In addition, both of ClearPoint’s remaining warehouse lines expire in September 2012, and under neither of these lines is the lender committed to make further advances.

Failure of the lenders to renew or extend the warehouse lines upon expiration and/or not provide financing on the uncommitted portions of the lines would adversely impact ClearPoint’s ability to conduct business.  If ClearPoint is unable to replace the borrowing capacity when the warehouse lines expire or the lenders do not continue to fund requests, it may be required to reduce or terminate its loan origination activities and may not be able to satisfy its unfunded loan commitments.

ClearPoint continues to focus on increasing the number of loan purchasers with which it transacts, and pursuing additional warehouse lenders and loan distribution channels.  If ClearPoint is unable to execute on these strategies and/or other events occur which reduce its ability to obtain continued financing, these matters ultimately could have a material and adverse effect on the Company’s financial position, results of operations and/or cash flows.

Risks Related to the Company’s Broker-Dealer Operations

Concentrations of credit risk can be affected by changes in political, industry, or economic factors. The Company’s most significant industry credit concentration is with financial institutions. Financial institutions include other brokers and dealers, commercial banks, finance companies, insurance companies and investment companies. This concentration arises in the normal course of the Company’s brokerage, trading, financing, and underwriting activities. To reduce the potential for concentration of risk, credit exposures are monitored in light of changing counterparty and market conditions.

The Company may also purchase securities that are individually significant positions within its inventory.  Should the Company find it necessary to sell such a security, it may not be able to realize the full carrying value of the security due to the significance of the position sold.

The majority of securities transactions of counterparties of the Company’s broker-dealer subsidiary, Gleacher Securities, are cleared primarily through a third party under a clearing agreement.  Under this agreement, transactions are deemed to be either receive versus payment, delivery versus payment or cash transactions.

Refer to Note 16 within the section labeled “Other” for additional information regarding credit risks of the Company.