Segment Analysis

9 Months Ended

Sep. 30, 2012

Segment Analysis

Segment Analysis

25.Segment Analysis

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

· 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.

· MBS & 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.

· Credit Products — 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.

· ClearPoint — This division originates, processes and underwrites single and multi-family residential mortgage loans within 43 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. On November 8, 2012, the Company announced that it was pursuing a sale of the ClearPoint business. Refer to Note 27, herein, for additional information.

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

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.

The Equities segment results have been reclassified as discontinued operations 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 goodwill impairment charges, 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)	2012			2011			2012			2011
Net revenues
Investment Banking
Investment banking	$	1,499		$	7,075		$	14,762		$	23,674
Other revenue	—			—			—			—
Total Investment Banking	1,499			7,075			14,762			23,674
MBS & Rates
Sales and trading	4,162			(190		)	9,023			52,791
Investment banking	10			2,257			632			3,558
Interest income	5,953			15,178			32,720			43,374
Interest expense	(1,924		)	(3,531		)	(10,051		)	(10,549		)
Other revenue	742			—			2,232			15
Total MBS & Rates	8,943			13,714			34,556			89,189
Credit Products
Sales and trading	17,776			15,345			54,982			47,502
Investment banking	487			27			2,394			2,491
Interest income	266			321			622			1,169
Interest expense	(122		)	(140		)	(341		)	(456		)
Other revenue	397			169			736			332
Total Credit Products	18,804			15,722			58,393			51,038
ClearPoint
Sales and trading	11,553			10,660			34,045			22,116
Interest income	711			746			4,148			1,648
Interest expense	(952		)	(714		)	(4,107		)	(1,572		)
Other revenue	1,587			2,050			5,674			3,917
Total ClearPoint	12,899			12,742			39,760			26,109
Total net revenues — Reportable segments	42,145			49,253			147,471			190,010
Other
Investment (losses)/gains, net	163			2,857			156			2,539
Sales and trading	(9		)	(56		)	(9		)	(50		)
Gain from bargain purchase — ClearPoint acquisition	—			—			—			2,330
Interest income	(51		)	4			142			10
Interest expense	(21		)	(27		)	(86		)	(1,447		)
Interest expense — Intersegment allocations	870			1,740			4,324			5,729
Other revenue	233			393			720			811
Total Other	1,185			4,911			5,247			9,922
Total net revenues	$	43,330		$	54,164		$	152,718		$	199,932
(Loss)/income before income taxes from continuing operations
Investment Banking	$	(257	)	$	(1,452	)	$	2,517		$	3,539
MBS & Rates	1,814			4,247			5,556			29,655
Credit Products	3,939			3,495			4,536			6,338
ClearPoint	(524		)	(335		)	(5,878		)	(2,907		)
Income/(loss) before income taxes from continuing operations — Reportable segments	$	4,972		$	5,955		$	6,731		$	36,625
Other	(9,996		)	(84,740		)	(48,788		)	(98,265		)
Loss before income taxes from continuing operations	$	(5,024	)	$	(78,785	)	$	(42,057	)	$	(61,640	)

Information concerning the assets of these segments is as follows:

	September 30,			December 31,
(In thousands of dollars)	2012			2011
Total Assets
MBS & Rates	$	1,260,724		$	2,929,879
Credit Products	34,719			29,930
Investment Banking	8,597			10,916
ClearPoint	105,888			242,350
Total assets — Reportable segments	1,409,928			3,213,075
Other	69,880			126,358
Intersegment eliminations	(32,092		)	(35,877		)
Total assets	$	1,447,716		$	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.