Segment Reporting

9 Months Ended

Sep. 30, 2020

The Company has two reportable business segments: Op Co and Asset Co. The Op Co segment consists of CIM, Investment Banking, Markets and Research. The Asset Co segment consists of the Company's private investments, private real estate investments and other legacy investment strategies.

Performance measures

The performance measure for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate compensation levels. Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors.

In general, Economic Income (Loss) is a pre-tax measure that (i) includes management reclassifications which the Company believes provides additional insight on the performance of the Company’s core businesses and divisions (ii) eliminates the impact of consolidation for Consolidated Funds and excludes (iii) goodwill and intangible impairment (iv) certain other transaction-related adjustments and/or reorganization expenses and (v) certain costs associated with debt.

As further stated below, one major difference between Economic Income (Loss) and US GAAP net income (loss) is that Economic Income (Loss) presents the segments' results of operations without the impact resulting from the full consolidation of any of the Consolidated Funds. Included in Economic Income (Loss) is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, excluding non-controlling interests, which is relevant in management making operating decisions and evaluating financial performance. The Company does not disclose total asset information for its business segments as the information is not reviewed by the CODM.

The following tables set forth operating results for the Company's consolidated US GAAP net income (loss) and related reclassifications and adjustments necessary to reconcile to the Company's Economic Income (Loss) measure which represents the Company's Op Co and Asset Co segments' results:


	Three Months Ended September 30, 2020
US GAAP			Reclassifications and Adjustments									Economic Income
	Net income (loss)		Management Reclassifications			Fund Consolidation Reclassifications (k)			Income Statement Adjustments					Operating Company		Asset Company
	(dollars in thousands)
Revenues													Economic Proceeds
Investment banking	$	194,341	$	(9,190)	a, b	$	—		$	—			Investment banking	$	185,151	$	—
Brokerage	138,483		28,601		c, h	—			—				Brokerage	167,084		—
Management fees	11,954		2,519		d, e	163			—				Management fees	14,374		262
Incentive income (loss)	127		(1,462)		e	33			—				Incentive income (loss)	(2,621)		1,319
	—		(90,488)		f	—			—				Investment income (loss)	(90,364)		(124)
Interest and dividends	37,552		(37,552)		c	—			—					—		—
Reimbursement from affiliates	269		(269)		b	—			—					—		—
Reinsurance premiums	2,505		(2,505)		g	—			—					—		—
Other revenue	1,369		(2,160)		g	(3)			—				Other revenues	(796)		2
Consolidated Funds revenues	1,135		—			(1,135)			—					—		—
Total revenues	387,735		(112,506)			(942)			—				Total Economic proceeds	272,828		1,459
Interest and dividend expense	37,754		(29,467)		c	—			(1,152)		l		Interest expense	6,026		1,109
Total net revenues	349,981		(83,039)			(942)			1,152				Total Economic net proceeds	266,802		350
Expenses													Economic Costs
Compensation & benefits	153,427		359		i	—			—				Compensation & Benefits	152,829		957
	—		37,708		e, j	—			(3,324)		m		Fixed non-compensation expense	34,257		127
	—		37,742		j	—			—				Variable non-compensation expense	37,736		6
Other non-compensation expenses	89,636		(89,636)		a, b, d, g, i	—			—					—		—
Depreciation & amortization	5,682		—			—			(7)		n		Depreciation & Amortization	5,670		5
	—		2,105		j	—			—				Economic Non-Controlling Interest	2,105		—

Consolidated Funds expenses	494		—			(494)			—					—		—
Total expenses	249,239		(11,722)			(494)			(3,331)				Total Economic costs	232,597		1,095
Other income (loss)	(62,396)		64,896		e, f, h	(2,500)			—					—		—




	—		—			—			1,698				Preferred stock dividends	1,415		283
Income (loss) before income taxes	$	38,346	$	(6,421)	*	$	(2,948)	*	$	2,785			Economic income (loss)	$	32,790	$	(1,028)



	Three Months Ended September 30, 2019
US GAAP			Reclassifications and Adjustments									Economic Income
	Net income (loss)		Management Reclassifications			Fund Consolidation Reclassifications (k)			Income Statement Adjustments				Operating Company		Asset Company
	(dollars in thousands)
Revenues												Economic Proceeds
Investment banking	$	77,292	$	(7,859)	a, b	$	—		$	—		Investment banking	$	69,433	$	—
Brokerage	93,995		16,183		c, h	—			—			Brokerage	110,178		—
Management fees	7,300		3,033		d, e	574			—			Management fees	10,321		586
Incentive income (loss)	701		13,675		e	13			—			Incentive income (loss)	15,251		(862)
	—		11,735		f	—			—			Investment income (loss)	10,913		822
Interest and dividends	60,707		(60,707)		c	—			—				—		—
Reimbursement from affiliates	238		(265)		b	27			—				—		—
Reinsurance premiums	8,146		(8,146)		g	—			—				—		—
Other revenue	1,237		(1,389)		g	26			—			Other revenues	(132)		6
Consolidated Funds revenues	2,431		—			(2,431)			—				—		—
Total revenues	252,047		(33,740)			(1,791)			—			Total Economic proceeds	215,964		552
Interest and dividend expense	56,477		(48,238)		c	—			(1,092)		l	Interest expense	5,758		1,389
Total net revenues	195,570		14,498			(1,791)			1,092			Total Economic net proceeds	210,206		(837)
Expenses												Economic Costs
Compensation & benefits	120,320		2,299		i	—			—			Compensation & Benefits	121,890		729
	—		37,559		e, j	—			(476)		m	Fixed non-compensation expense	36,458		625
	—		37,256		j	—			—			Variable non-compensation expense	37,216		40
Other non-compensation expense	92,046		(92,046)		a, b, d, g, i	—			—				—		—
Depreciation & amortization	5,082		—			—			—			Depreciation & Amortization	5,073		9
	—		661		j	—			—			Economic Non-Controlling Interest	661		—

Consolidated Funds expenses	2,516		—			(2,516)			—				—		—
Total expenses	219,964		(14,271)			(2,516)			(476)			Total Economic costs	201,298		1,403
Other income (loss)	32,342		(26,721)		e, f, h	(5,621)			—				—		—



	—		—			—			1,698			Preferred stock dividends	1,341		357
Income (loss) before income taxes	$	7,948	$	2,048	*	$	(4,896)	*	$	(130)		Economic income (loss)	$	7,567	$	(2,597)


	Nine Months Ended September 30, 2020
US GAAP			Reclassifications and Adjustments									Economic Income
	Net income (loss)		Management Reclassifications			Fund Consolidation Reclassifications (k)			Income Statement Adjustments				Operating Company		Asset Company
	(dollars in thousands)
Revenues												Economic Proceeds
Investment banking	$	503,351	$	(28,573)	a, b	$	—		$	—		Investment banking	$	474,778	$	—
Brokerage	425,069		41,754		c, h	—			—			Brokerage	466,823		—
Management fees	35,211		5,672		d, e	1,475			—			Management fees	41,724		634
Incentive income (loss)	127		40,827		e	33			—			Incentive income (loss)	40,829		158
	—		18,895		f	—			—			Investment income (loss)	32,566		(13,671)
Interest and dividends	127,547		(127,547)		c	—			—				—		—
Reimbursement from affiliates	777		(827)		b	50			—				—		—
Reinsurance premiums	18,943		(18,943)		g	—			—				—		—
Other revenue	4,709		(4,982)		g	(21)			—			Other revenues	(298)		4
Consolidated Funds revenues	4,650		—			(4,650)			—				—		—
Total revenues	1,120,384		(73,724)			(3,113)			—			Total Economic proceeds	1,056,422		(12,875)
Interest and dividend expense	125,850		(99,971)		c	—			(3,394)		l	Interest expense	18,471		4,014
Total net revenues	994,534		26,247			(3,113)			3,394			Total Economic net proceeds	1,037,951		(16,889)
Expenses												Economic Costs
Compensation & benefits	583,137		1,436		i	—			—			Compensation & Benefits	582,480		2,093
	—		111,880		e, j	—			(5,152)		m	Fixed non-compensation expense	106,350		378
	—		121,864		j	—			—			Variable non-compensation expense	121,846		18
Other non-compensation expense	286,666		(286,666)		a, b, d, g, i	—			—				—		—
Depreciation & amortization	17,324		—			—			(551)		n	Depreciation & Amortization	16,756		17
	—		5,584		j	—			—			Economic Non-Controlling Interest	5,584		—

Consolidated Funds expenses	4,793		—			(4,793)			—				—		—
Total expenses	891,920		(45,902)			(4,793)			(5,703)			Total Economic costs	833,016		2,506
Other income (loss)	54,328		(82,006)		e, f, h	27,678			—				—		—



	—		—			—			5,094			Preferred stock dividends	4,160		934
Income (loss) before income taxes	$	156,942	$	(9,857)	*	$	29,358	*	$	4,003		Economic income (loss)	$	200,775	$	(20,329)



	Nine Months Ended September 30, 2019
US GAAP			Reclassifications and Adjustments									Economic Income
	Net income (loss)		Management Reclassifications			Fund Consolidation Reclassifications (k)			Income Statement Adjustments				Operating Company		Asset Company
	(dollars in thousands)
Revenues												Economic Proceeds
Investment banking	$	272,103	$	(17,729)	a, b	$	—		$	—		Investment banking	$	254,374	$	—
Brokerage	302,840		43,255		c, h	—			—			Brokerage	346,095		—
Management fees	21,480		8,684		d, e	1,640			—			Management fees	30,016		1,788
Incentive income (loss)	724		33,479		e	557			—			Incentive income (loss)	33,998		762
	—		19,116		f	—			—			Investment income (loss)	13,827		5,289
Interest and dividends	129,846		(129,846)		c	—			—				—		—
Reimbursement from affiliates	780		(874)		b	94			—				—		—

Reinsurance premiums	29,068		(29,068)		g	—			—				—		—
Other revenue	3,228		2,109		g	14			—			Other revenues	5,295		56
Consolidated Funds revenues	8,239		—			(8,239)			—				—		—
Total revenues	768,308		(70,874)			(5,934)			—			Total Economic proceeds	683,605		7,895
Interest and dividend expense	125,089		(101,464)		c	—			(3,208)		l	Interest expense	16,371		4,046
Total net revenues	643,219		30,590			(5,934)			3,208			Total Economic net proceeds	667,234		3,849
Expenses												Economic Costs
Compensation & benefits	388,611		2,365		i	—			—			Compensation & Benefits	386,593		4,383
	—		112,038		e, j	—			(1,664)		m	Fixed non-compensation expense	107,889		2,485
	—		113,855		j	—			—			Variable non-compensation expense	113,728		127
Other non-compensation expense	276,054		(276,054)		a, b, d, g, i	—			—				—		—
Depreciation & amortization	14,990		(3)			—			—			Depreciation & Amortization	14,957		30
	—		2,944		j	—			—			Economic Non-Controlling Interest	2,944		—
Goodwill impairment	4,100		—			—			(4,100)		n		—		—
Consolidated Funds expenses	6,229		—			(6,229)			—				—		—
Total expenses	689,984		(44,855)			(6,229)			(5,764)			Total Economic costs	626,111		7,025
Other income (loss)	82,976		(73,907)		e, f, h	(9,069)			—				—		—



	—		—			—			5,094			Preferred stock dividends	4,058		1,036
Income (loss) before income taxes	$	36,211	$	1,538	*	$	(8,774)	*	$	3,878		Economic income (loss)	$	37,065	$	(4,212)

Adjustments made to US GAAP Net Income (Loss) to arrive at Economic Income (Loss)


Management Reclassifications
			Management reclassification adjustments and fund consolidation reclassification adjustments have no effect on economic income. These adjustments are reclassifications to change the location of certain line items.
a			Economic Income (Loss) presents underwriting expenses net of investment banking revenues.
b			Economic Income (Loss) presents expenses reimbursed from clients and affiliates within their respective expense category but is included as a part of revenues under US GAAP.
c			Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities which are shown gross in interest income and interest expense for US GAAP.
d			Economic Income (Loss) presents revenues net of fund start-up costs and distribution fees paid to agents.
e			Economic Income (Loss) recognizes the Company's proportionate share of management and incentive fees and associated share of expenses on a gross basis for certain real estate operating entities, the healthcare royalty business and the activist business. Additionally, carried interest, which the Company applies an equity ownership model to, is recorded in other income (loss) for US GAAP and is shown as incentive income for Economic Income (Loss).
f			Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends) for which the majority of this activity is shown in other income (loss) for US GAAP reporting.
g			Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue. The costs are recorded within expenses for US GAAP reporting.
h			Economic Income (Loss) recognizes gains and losses on investments held as part of the Company's facilitation and trading business within brokerage revenues as these investments are directly related to the markets business activities.
i			Economic Income (Loss) presents certain payments to associated banking partners as compensation rather than non-compensation expenses.
j			Economic Income (Loss) presents US GAAP expenses as either Fixed non-compensation or Variable non-compensation expenses. The Company also presents US GAAP Income (loss) attributable to non-controlling interests within total other expenses for Economic Income (Loss).
*			The remainder primarily represents non-controlling interest which is excluded from this reconciliation to income (loss) before income taxes.
Fund Consolidation Reclassifications
k			The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income (Loss). Adjustments to reconcile to US GAAP net income (loss) included elimination of incentive income and management fees earned from the Consolidated Funds and addition of investment fund expenses excluding management fees paid, investment fund revenues and investment income (loss).
*			The remainder primarily represents non-controlling interest which is excluded from this reconciliation to income (loss) before income taxes.
Income Statement Adjustments
l			Economic Income (Loss) excludes the amortization of discount on convertible debt.
m			Economic Income (Loss) excludes acquisition related adjustments as management does not consider these items when evaluating the performance of the Company.


n			Economic Income (Loss) excludes goodwill and intangible impairment.