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Gleacher & Company Reports First Quarter 2013 Financial Results

  Gleacher & Company Reports First Quarter 2013 Financial Results

Business Wire

NEW YORK -- May 09, 2013

Gleacher & Company, Inc. (Nasdaq: GLCH) today reported net revenues from
continuing operations of $26.9 million, net loss from continuing operations of
($13.7) million, and diluted loss per share of ($0.15).

Developments

  *Q1 results benefited by performance of Investment Banking
  *Company has exited its Fixed Income business
  *ClearPoint, now a discontinued operation, closed on sale of substantially
    all of its assets to Homeward Residential, Inc., a wholly owned subsidiary
    of Ocwen Financial Corporation
  *Company’s prospects uncertain

            Recent Developments – Exit of Fixed Income Businesses

The Company has disclosed, in previous filings, various uncertainties that
have adversely impacted counterparty relationships, employee turnover, and
operating results. These factors have impacted the overall stability of the
Company’s platform, and have caused a significant decline in revenue for the
first quarter of 2013.

Given these adverse developments, on April 5, 2013 the Company’s Board of
Directors approved a plan to discontinue operations in its MBS & Rates and
Credit Products Divisions. The plan is expected to be completed by the end of
the second quarter 2013. Exiting these businesses, together with associated
rightsizing of administrative and other support personnel, could impact up to
approximately 160 employees. The plan did not include the Company’s other
business operations, principally Investment Banking.

The Company expects the total charge in connection with this plan will be
between $15 million and $20 million. Of the total charge, the Company
estimates that between $11 million and $16 million will result in future cash
expenditures. The major costs associated with the plan, and an estimate of
each, are as follows:

  *between $11 million and $13 million related to severance and other
    compensation costs; and
  *between $4 million and $7 million in costs associated with third-party
    vendor contracts and other costs (excluding lease commitments).

The Company is currently evaluating its alternatives with respect to its lease
commitments, principally its headquarters in New York City, and is therefore
unable to estimate a lease restructuring cost, if any, at this time. The lease
on the Company’s headquarters relates to 84,000 square feet of space with an
average cost per square foot of $62 and expires April 30, 2025. The Company’s
plans with regards to this space are uncertain pending the change in the board
of directors, which will result from the 2013 Annual Stockholders Meeting to
be held May 23. If the Company determines to vacate some or all of this space,
it could incur substantial lease restructuring expense, which it would seek to
minimize through subleasing or other cost reduction measures.

The Company’s cash position, as of March 31, 2013, was approximately $90.0
million, which included approximately $37.6 million of excess equity (funds
that are readily available to the Company) held at the firm’s clearing broker
and approximately $12.0 million of deposits at clearing organizations. As of
May 6, 2013, the Company’s cash position increased to approximately $105
million, excluding remaining financial instruments owned of approximately $6
million, which are fully paid for. The increase resulted from the sale of
financial instruments owned and the collection of related principal and
interest. These cash inflows were partially offset by ongoing operating
expenses, restructuring costs of approximately $6.0 million associated with
the plan to exit Fixed Income, as well as estimated net trading losses of
approximately $3.0 million to $4.0 million recognized by the MBS & Rates
division in connection with its wind down, subsequent to March 31st.

The results of the Company’s MBS & Rates and Credit Products divisions,
including the restructuring costs mentioned above, will be reported within
discontinued operations in the second quarter of 2013.

                                   Outlook

The Company’s ability to generate revenue and continue business operations
subsequent to exiting its Fixed Income businesses depends principally on its
Investment Banking activity, and in particular, generating fees for advisory
services. Given the Company’s state, its ability to generate future Investment
Banking revenues is currently uncertain. Unless the Company is able to
generate significant Investment Banking revenues, or develop new and
profitable business lines, the Company will continue to operate at a loss.

At the Company’s 2013 Annual Stockholders Meeting to be held May 23, the board
of directors will be largely reconstituted, with director slates expected to
be nominated by each of MatlinPatterson FA Acquisition LLC (“MatlinPatterson”)
and affiliates of Clinton Group, Inc. (collectively, “Clinton”). Clinton has
filed preliminary materials with the Securities and Exchange Commission
indicating that its slate of director nominees favors a turnaround plan that
focuses on new business lines. According to these materials, Clinton’s
turnaround plan would include rebuilding the Company around Asset Management
and related Investment Banking and other services.

MatlinPatterson has recently filed preliminary materials with the SEC
indicating that its slate of directors envisions three potential avenues for
optimizing stockholder value: winding down the Company’s business and
distributing proceeds to the stockholders; pursuing a strategic alternative
such as a merger or sale of the business; and re-investing the Company’s
liquid assets in favorable opportunities.

Given these facts, the Company’s prospects are highly uncertain.

Summary of Financial Results
                                   
                                    Three Months Ended
                                    March 31,      December 31,  March 31,
(In thousands, except for per       2013            2012           2012
share amounts)
Consolidated Results                (Unaudited)     (Unaudited)    (Unaudited)
                                                                      
Net revenues – continuing           $ 26,850      $ 36,979         $  48,966
operations
Pre-tax loss from continuing        $ (13,578 )   $ (11,404   )    $  (2,358 )
operations
Net loss from continuing            $ (13,663 )   $ (11,597   )    $  (3,032 )
operations
Discontinued operations, net of     $ (4,308  )   $ 335            $  (1,652 )
taxes
                                                                      
Earnings per share:
Diluted - continuing operations     $ (0.11   )   $ (0.10     )    $  (0.03  )
Diluted - discontinued operations   $ (0.04   )   $ 0.00          $  (0.01  )
Diluted earnings per share –        $ (0.15   )   $ (0.09     )    $  (0.04  )
total:
                                                                      
Business Segment Results
(Continuing Operations)
Net revenues:
Investment Banking                  $ 15,032      $ 12,680         $  4,533
MBS & Rates                           (722    )     6,081             20,331
Credit Products                       11,825       16,039           21,716 
Net revenues – operating segments     26,135        34,800            46,580
Other                                 715          2,179            2,386  
Total                               $ 26,850     $ 36,979        $  48,966 
                                                                      
Pre-tax (loss)/income from
continuing operations:
Investment Banking                  $ 3,345       $ 2,061          $  579
MBS & Rates                           (8,254  )     (5,434    )       5,487
Credit Products                       (417    )     (795      )       (688   )
Pre-tax (loss)/income – operating     (5,326  )     (4,168    )       5,378
segments
Other                                 (8,252  )     (7,236    )       (7,736 )
Total                               $ (13,578 )   $ (11,404   )    $  (2,358 )


                              Investment Banking

Net revenues were $15.0 million for the quarter ended March 31, 2013, an
improvement of $2.4 million compared to the prior-period quarter and $10.5
million compared to the first quarter of 2012.

The composition of the division’s investment banking revenues was as follows:

                 
                  Three Months Ended
                  March 31,    December, 31  March 31,
(In thousands)    2013          2012           2012
                  (Unaudited)   (Unaudited)    (Unaudited)
                                                         
Advisory          $  14,670     $  12,636      $  2,530
Capital Markets     362         44           2,003  
Total:            $  15,032    $  12,680     $  4,533  


                                 MBS & Rates

Net revenues were ($0.7) million for the quarter ended March 31, 2013, a
decline of $6.8 million compared to the prior-period quarter and $21.1 million
compared to the first quarter of 2012. The net revenues for the first quarter
of 2013 were comprised of sales and trading losses of $7.6 million, offset by
net interest income of $6.8 million and investment banking revenues of $0.1
million. The sales and trading losses were largely attributable to the
previously disclosed adverse developments, which resulted in a number of our
trading counterparties reducing or suspending trading activities with us. In
light of these developments, the Company reduced the size of the division’s
balance sheet during the first quarter, suffering trading losses of
approximately $5.0 million in connection with its efforts (sales and trading
results also include prepayment losses on agency mortgage-backed securities
positions). The division also experienced lower net interest income during the
current quarter, when compared to the prior periods, due to the lower average
inventory levels.

Substantially all remaining financial instruments held by this division have
since been sold. In connection with this wind down, estimated net trading
losses of approximately $3.0 million to $4.0 million are expected to be
recognized in the second quarter of 2013. The results of the MBS & Rates
division will also be reclassified as a discontinued operation in the second
quarter of 2013.

                               Credit Products

Net revenues were $11.8 million for the quarter ended March 31, 2013, a
decline of $4.2 million compared to the prior-period quarter and $9.9 million
compared to the first quarter of 2012. On February 20, 2013, the Company
confirmed the departure of approximately 20 professionals previously employed
within this division. These and other departures, as well as previously
disclosed adverse developments, had a materially adverse impact on the
division’s sales and trading activities.

The results of the Credit Products division will be reclassified as a
discontinued operation in the second quarter of 2013.

                                    Other

Net revenues were $0.7 million for the quarter ended March 31, 2013, a decline
of $1.5 million compared to the prior-period quarter and $1.7 million compared
to the first quarter of 2012. The declines in other revenues include reduced
cost of capital charges to the MBS & Rates division (which are eliminated
within the consolidated results) due to lower average inventory levels. In
addition, net revenues were lower when compared to the prior-period quarter
due to changes in value of the Company’s FATV investment.

 Consolidated Compensation and Benefits Expenses (from continuing operations)

Compensation and benefits expense from continuing operations was $29.1 million
for the quarter ended March 31, 2013, a decline of $9.2 million compared to
the prior-period quarter, and a decline of $10.3 million compared to the first
quarter of 2012. These declines are primarily attributable to the declines in
sales and trading revenues within the MBS & Rates and Credit Products
divisions, as a significant portion of compensation within these divisions is
variable. However, the Company’s compensation and benefits expense as a
percentage of net revenues from continuing operations was 108.4% for the first
quarter of 2013, adversely affected by the previously mentioned trading losses
incurred in connection with the MBS & Rates division reducing the size of its
balance sheet, as well as the ratio of fixed compensation costs firm-wide in
relation to the reduced revenues. Fixed compensation costs are expected to be
reduced in connection with the Company’s previously mentioned restructuring,
which is expected to impact up to 160 employees.

     Consolidated Non-Compensation Expenses (from continuing operations)

Non-compensation expenses from continuing operations were $11.3 million for
the quarter ended March 31, 2013, compared to $10.0 million for the
prior-period quarter and $11.9 million for the first quarter of 2012. The
increase in non-compensation expenses from continuing operations of $1.3
million when compared to the prior-period quarter included higher professional
fees incurred in connection with the developments leading up to the Company’s
decision to exit the MBS & Rates and Credit Products businesses, effective in
the second quarter of 2013. Non-compensation expenses from continuing
operations decreased $0.6 million when compared to the first quarter of 2012,
and included lower clearing, settlement and brokerage expenses on lower
trading volumes.

                          Provision for Income Taxes

Quarter Ended March 31, 2013

The Company provided for a full valuation allowance against the net operating
losses generated during the quarter ended March 31, 2013, resulting in no
income tax benefit. Income tax expense of $0.1 million is due to state
franchise taxes and interest expense on uncertain tax positions.

                           Discontinued Operations

The Company has classified the results of ClearPoint as discontinued
operations due to the sale of substantially all of ClearPoint’s assets on
February 22, 2013. This includes the reclassification of ClearPoint’s results
for prior periods in order to conform to the current period presentation.
Discontinued operations also include residual profits and losses related to
the Equities division due to the Company’s decision to exit this business on
August 22, 2011.

Results of these discontinued operations are presented in the following table:

                            
                             Three Months Ended
                             March 31,        December 31,    March 31,
(In thousands)               2013              2012             2012
                             (Unaudited)       (Unaudited)      (Unaudited)
                                                               
Net revenues
ClearPoint                   $     4,408       $     13,615     $     15,545
Equities division                76            -            37     
Total net revenues               4,484         13,615       15,582 
Total expenses (excluding
interest)
ClearPoint                         8,711             13,504           18,469
Equities division                81            (224   )      (73    )
Total expenses                   8,792         13,280       18,396 
(Loss)/income from
discontinued operations            (4,308 )*         335              (2,814 )
before income taxes
Provision for income taxes      -             -            (1,162 )
(Loss)/income from
discontinued operations,     $   (4,308 )    $   335       $   (1,652 )
net of taxes

*Included within the table above for the three months ended March 31, 2013 is
(i) a ClearPoint restructuring charge of approximately $2.8 million and (ii) a
loss of approximately $1.1 million on ClearPoint assets sold to Homeward.


Summary Results of Operations
                                     
                                      Three Months Ended
(In thousands, except for per share   March 31,    December 31,  March 31,
amounts)
                                      2013          2012           2012
Revenues:                             (Unaudited)   (Unaudited)    (Unaudited)
Principal transactions                $ (6,999  )   $  (4,332  )   $ 8,499
Commissions                             10,181         18,240        19,151
Investment banking                      15,173         12,765        6,678
Investment gains/(losses), net          172            1,077         132
Interest income                         8,966          10,379        16,761
Fees and other                         964          675         514     
Total revenues                          28,457         38,804        51,735
Interest expense                       1,607        1,825       2,769   
Net revenues                           26,850       36,979      48,966  
Non-interest expenses
Compensation and benefits               29,115         38,336        39,392
Professional fees                       3,227          2,601         3,556
Communications and data processing      3,147          3,013         3,252
Occupancy, depreciation and             1,908          2,080         1,916
amortization
Clearing, settlement and brokerage      1,009          838           1,570
Business development                    753            863           918
Other                                  1,269        652         720     
Total non-interest expenses            40,428       48,383      51,324  
Loss from continuing operations
before income taxes and discontinued    (13,578 )      (11,404 )     (2,358  )
operations
Income tax expense                     85           193         674     
Loss from continuing operations         (13,663 )      (11,597 )     (3,032  )
(Loss)/income from discontinued        (4,308  )     335         (1,652  )
operations, net of taxes
Net loss                              $ (17,971 )   $  (11,262 )   $ (4,684  )
                                                                     
Earnings per share:
Basic (loss)/income per share
Continuing operations                 $ (0.11   )   $  (0.10   )   $ (0.03   )
Discontinued operations                (0.04   )     0.00        (0.01   )
Net loss per share                    $ (0.15   )   $  (0.09   )   $ (0.04   )
                                                                     
Diluted (loss)/income per share
Continuing operations                 $ (0.11   )   $  (0.10   )   $ (0.03   )
Discontinued operations                (0.04   )     0.00        (0.01   )
Net loss per share                    $ (0.15   )   $  (0.09   )   $ (0.04   )
                                                                     
Weighted average number of shares of
common stock:
Basic                                   119,510        118,977       119,510
Diluted                                 119,510        118,977       119,510
                                      

Consolidated Statement of Financial Condition (Unaudited)
                                                            
(In thousands, except for share and per      March 31,         December 31,
share amounts)
                                             2013              2012
Assets:
Cash and cash equivalents                    $ 40,412          $ 44,868
Cash and securities segregated for             6,000             13,000
regulatory and other purposes
Securities purchased under agreements to       20,816            -
resell
Receivables from
Brokers, dealers and clearing organizations    13,437            12,824
Related parties                                1,474             1,474
Other                                          10,078            12,563
Financial instruments owned, at fair value     479,232           1,096,181
Loans held for sale, ClearPoint, at fair       7,693             -
value
Investments                                    21,597            20,478
Office equipment and leasehold                 4,507             5,311
improvements, net
Goodwill                                       1,212             1,212
Intangible assets                              4,551             5,303
Income taxes receivable                        4,379             7,394
Deferred tax assets, net                       -                 -
Other assets                                  10,008          9,030       
Total Assets                                 $ 625,396        $ 1,229,638   
Liabilities and Stockholders' Equity
Liabilities
Payables to:
Brokers, dealers and clearing organizations  $ 409,213         $ 638,009
Related parties                                2,984             2,944
Other                                          2,684             2,251
Securities sold under agreements to            -                 159,386
repurchase
Securities sold, but not yet purchased, at     21,713            132,730
fair value
Secured borrowings, ClearPoint                 4,272             64,908
Accrued compensation                           9,568             34,199
Accounts payable and accrued expenses          7,519             9,866
Income taxes payable                           3,827             3,755
Subordinated debt                             595             595         
Total Liabilities                             462,375         1,048,643   
Stockholders' Equity
Common stock ($.01 par value; authorized       1,337             1,337
200,000,000 shares)
Additional paid-in capital                     454,779           453,938
Deferred compensation                          124               124
Accumulated deficit                            (281,548    )     (263,577    )
Treasury stock, at cost                       (11,671     )    (10,827     )
Total Stockholders' Equity                    163,021         180,995     
Total Liabilities and Stockholders' Equity   $ 625,396        $ 1,229,638   
                                                                 
Common stock (in shares)
Shares issued:                                 133,769,219      133,769,219 
Shares outstanding:                            122,942,752      124,440,655 
                                                                 
Treasury stock (in shares):                    10,826,467       9,328,564   


                           About Gleacher & Company

Gleacher & Company, Inc. (Nasdaq: GLCH) is an independent investment bank that
provides clients with strategic and financial advisory services, including
merger and acquisition, restructuring, recapitalization, and strategic
alternative analysis. For more information, please visit www.gleacher.com.

                          Forward Looking Statements

This press release contains “forward-looking statements.” These statements are
not historical facts but instead represent the Company’s belief or plans
regarding future events, many of which are inherently uncertain and outside of
the Company's control. The Company often, but not always, identifies
forward-looking statements by using words or phrases such as “anticipate,”
“estimate,” “plan,” “project,” “target,” “expect,” “continuing,” “ongoing,”
“believe” and “intend.” The Company’s forward-looking statements are based on
facts as the Company understands them at the time the Company makes any such
statement as well as estimates and judgments based on these facts. The
Company’s forward-looking statements may turn out to be inaccurate for a
variety of reasons, many of which are outside of its control. Factors that
could render the Company’s forward-looking statements subsequently inaccurate
include the conditions of the securities markets, generally, and demand for
the Company’s services within those markets, the risk of further credit rating
downgrades of the U.S. government by major credit rating agencies, the impact
of international and domestic sovereign debt uncertainties, the possibilities
of localized or global economic recession and other risks and factors
identified from time to time in the Company’s filings with the Securities and
Exchange Commission. You are cautioned not to place undue reliance on
forward-looking statements. The Company does not undertake to update any of
its forward-looking statements. Also, the Company’s board of directors will be
largely reconstituted at the 2013 Annual Stockholders Meeting to be held May
23. The directors elected at that meeting could subsequently make decisions
that fundamentally change the Company.

Contact:

Investors
Gleacher & Company, Inc.
Thomas J. Hughes, 212-273-7100
Chief Executive Officer
or
Media
Rubenstein Associates
Marcia Horowitz, 212-843-8014
 
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