What changed in this filing

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Item 1A. Risk Factors

2021-05-06 compared with 2020-11-06 · 19 added, 37 removed, 3 unchanged (95% of the section changed)

2 unchanged sentences

There have been no material changes in the significant factors that may affect our business and operations as described in “Item 1A—Risk Factors” of the Annual Report on 10-K for the year ended December 31, 2020 .

The effects of the outbreak of the novel coronavirus (“COVID-19”) have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients’ and counterparties’ operations, which could have an adverse effect on our business, financial condition and results of operations.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.

The United States now has the world’s most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of individuals infected with COVID-19.

All states have declared states of emergency.

Similar impacts have been experienced in every country in which we do business.

Impacts to our business could be widespread and global, and material impacts may be possible, including the following:

Our employees contracting COVID-19;

Reductions in our operating effectiveness as our employees work from home or disaster-recovery locations;

Unavailability of key personnel necessary to conduct our business activities;

Unprecedented volatility in global financial markets;

Reductions in revenue across our operating businesses;

Closure of our offices or the offices of our clients;

De-globalization.

While the Company cannot fully assess the impact COVID-19 will have on all of its operations, at this time, there are certain impacts that the Company has identified:

The unprecedented volatility of the financial markets experienced in March 2020, has caused the Company to operate JVB, the Company’s wholly owned U.S.

broker-dealer subsidiary, at a lower level of leverage than prior to the pandemic.

Specifically, the Company has reduced the size of its GCF repo operations and the volume of its TBA trading.

The Company determined that at its pre-pandemic levels in these businesses, it was exposed to a high level of counterparty credit risk and was experiencing too much volatility in its available liquidity to meet capital requirements and margin calls in these businesses.

The Company expects to operate at lower volumes in both these businesses for a significant period of time, which will impact the operating profitability of JVB.

The financial market volatility, as well as the reduction in volumes in the GCF repo and TBA businesses, that resulted from COVID-19 required the Company to reassess the goodwill it had recorded related to JVB.

The Company determined that the fair value of JVB was less than the carrying value (including the goodwill).

As a result, the Company recorded an impairment loss of $7.9 million in the three months ended September 30, 2020 .

The Company expects that its asset management segment will also be adversely impacted by the pandemic.

While it is difficult to determine the extent of the impact at this time, the Company expects that raising capital for new funds may become more challenging.

In addition, lower returns earned by funds will adversely impact the Company’s asset management fees, and investors’ need for liquidity may result in reductions in assets under management.

The Company’s mortgage group’s operations are centered on serving the financial needs of mortgage originators and institutions that invest in mortgage backed securities.

Prolonged high unemployment will most likely impact mortgage originations and demand for and supply of mortgage backed securities, which may have a significant impact on the revenue earned by JVB’s mortgage group.

The Company has taken decisive actions to protect employees and mitigate the impact of COVID-19, including transitioning employees to remote work and limiting onsite presence.

To date, the Company has been able to avoid layoffs and furloughs of employees.

As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly.

The further spread of the COVID-19 outbreak may materially disrupt banking and other financial activity generally and in the areas in which we operate.

This would likely result in a decline in demand for our products and services, which would negatively impact our liquidity position and our business strategies.

Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries’ business, operations, consolidated financial condition, and consolidated results of operations.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses.

Recent guidance from the SEC may require the warrants of Insurance SPAC III be accounted for as liabilities rather than as equity and may result in the restatement of the previously issued financial statements of Insurance SPAC III.

On April 12, 2021, the staff of the SEC issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Statement”).

In the Statement, the SEC staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity.

Since issuance, the warrants of Insurance SPAC III were accounted for as equity on its balance sheets.

As a result of the Statement, Insurance SPAC III is evaluating its accounting for warrants.

If Insurance SPAC III concludes that its warrants should be presented as liabilities with subsequent fair value remeasurement, it will then likely restate its previously issued financial statements.

A restatement of Insurance SPAC III’s financial statements may cause a delay for Insurance SPAC III in consummating a business combination and will force its management to focus time and effort on obtaining valuations for the warrants and restating its financials.

Any time management spends on a restatement cannot be spent on finding a suitable business combination target.

Because Insurance SPAC III must find a business combination target within a fixed period of time, this may increase the chance that Insurance SPAC III is unable to find a suitable target company causing it to liquidate and rendering our investment worthless.

Further, revised accounting may impact the target company in a business combination.

Treating the warrants as liabilities would be less desirable for most companies.

Therefore, target companies may demand changes to the warrant structure that could negatively impact our economic returns or could further reduce the likelihood that a successful business combination is completed within the limited timeframe allowed.

Any future inquiries from the SEC or NYSE American as a result of a restatement of the financial statements of Insurance SPAC III would, regardless of the outcome, likely consume a significant amount of its resources in addition to those resources consumed in connection with the restatement itself.

A restatement of Insurance SPAC III’s financial statements would result in unanticipated costs and may result in a loss of some or all of the funds which we have invested in and may lend to Insurance SPAC III to cover its administrative costs.

If we are unable to complete a business transaction within the allotted time as a result of a restatement of Insurance SPAC III’s financial statements, this may result in potential loss of investor confidence.

Such a loss in investor confidence could negatively affect our SPAC franchise and any other SPACs which we would sponsor in the future and could materially harm our business and results of operations.

A restatement of Insurance SPAC III ’ s financial statements may subject it to additional risks and uncertainties, including increased professional costs and the increased possibility of legal proceedings.

A restatement of Insurance SPAC III’s financial statements may subject it to additional risks and uncertainties, including, among others, increased professional fees and expenses and time commitment that may be required to address matters related to a restatement, and scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in Insurance SPAC III’s reported financial information and could subject Insurance SPAC III to civil or criminal penalties or shareholder litigation.

Insurance SPAC III could face monetary judgments, penalties or other sanctions that could have a material adverse effect on its business, financial condition and results of operations and could cause its stock price to decline.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors