Concentrations of Credit and Liquidity Risk

3 Months Ended

Mar. 31, 2013

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 was subject to liquidity risk concentrations, as ClearPoint relied on a limited number of investors to purchase its originated mortgage loans and only two lenders to finance these activities.  On February 14, 2013, the Company entered into the Homeward Transaction, an agreement to sell substantially all of ClearPoint’s assets to Homeward.  This transaction closed on February 22, 2013.  As a result, the Company is no longer subject to risk of liquidity concentrations of ClearPoint.

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 has been with financial institutions. These concentrations arise principally in connection with the Company’s MBS & Rates and Credit Products sales and trading activities (which are being discontinued in the second quarter of 2013).  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 customers of the Company’s broker-dealer subsidiary, Gleacher Securities (the activities of which are being discontinued in the second quarter of 2013), are cleared through a third party under clearing agreement.  Under this agreement, transactions are deemed to be either receive versus payment, delivery versus payment or cash transactions.  In addition, the Company’s inventory is financed principally by its clearing broker and, to a lesser extent, through repurchase agreements.

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