Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations for the years ended December 31, 2022 and 2021. For a discussion of our results of operations and liquidity and capital resources for the year ended December 31, 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
This analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report.
BACKGROUND
The consolidated financial statements include the accounts of Oppenheimer Holdings Inc. and its consolidated subsidiaries (together, the "Company", "Parent", "we", "our" or "us"). The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report.
Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, market-making, research, investment banking (both corporate and public finance), investment advisory and asset management services and trust services. Its principal subsidiaries are Oppenheimer & Co. Inc. ("Oppenheimer") and Oppenheimer Asset Management Inc. ("OAM"). As of December 31, 2022, we provided our services from 92 offices in 25 states located throughout the United States, offices in Puerto Rico, Tel Aviv, Israel, Hong Kong, China, London, England, St. Helier, Isle of Jersey, Munich, Germany and Geneva, Switzerland. The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's financial advisor directed programs. At December 31, 2022, client assets under management LLC ("AUM") totaled $36.8 billion. AUM includes the total market value of client investments in discretionary and non-discretionary advisory programs and as well as the net asset value of private placement of alternative investments offered by and held by clients of the firm. Client assets under administration ("CAUA") as of December 31, 2022 totaled $105.0 billion. CAUA includes AUM and the other assets for which the firm provides services. We also provide trust services and products through Oppenheimer Trust Company of Delaware and discount brokerage services through Freedom Investments, Inc. ("Freedom"). Through OPY Credit Corp., from time to time we may offer syndication as well as trading of issued syndicated corporate loans. At December 31, 2022, the Company employed 2,912 employees (2,868 full-time and 44 part-time), of whom 968 were financial advisors.
Outlook
We are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisors in our existing branch system and employment of experienced money management personnel in our asset management business as well as deploying our capital for expansion through targeted acquisitions. We are increasingly creating and investing in private market opportunities on our own behalf and on behalf of qualified clients. We are also focused on opportunities in our capital markets businesses where we can employ experienced personnel and/or small units that will improve our ability to attract institutional clients in both equities and fixed income without significantly raising our risk profile. We are continuously reviewing ways in which we can increase security around our data and our platform as the risks of cybercrime increase. In investment banking, we are committed to growing our footprint by adding experienced bankers within our existing industry practices as well as new industry practices where we believe we can be successful.
We continuously invest in and improve our technology platform to support client service and to remain competitive, while continuously managing expenses. The Company's long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations, and to continue to grow and develop the existing trading, investment banking, investment advisory and other divisions. We are committed to continuing to improve our capabilities to ensure compliance with industry regulations, support client service and expand our wealth management and capital markets capabilities. We recognize the importance of compliance with applicable regulatory requirements and are committed to performing rigorous and ongoing assessments of our compliance and risk management effort, and investing in people and programs, while providing a platform with first class investment programs and services.
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The Company is also reviewing its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where others have shown some success. Equally important is the search for viable acquisition candidates. Our long-term intention is to pursue growth by acquisition where we can find a comfortable match in terms of corporate goals and personnel at a price that would provide our shareholders with incremental value. We review potential acquisition opportunities from time to time with the aim of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses. In addition, the Company may from time to time make minority private investments out of excess capital in allied or unrelated businesses with the goal of either syndicating the investment to eligible clients or retaining ownership because we believe them to be an attractive investment.
Impact of Interest Rates
The Federal Reserve ("FED") increased the federal funds rate by 425 basis point during 2022, with the majority of that increase occurring during the second half of the year. While we have seen indications in the fourth quarter that inflation has peaked and is beginning to slowly abate, it remains at elevated levels. As a result, it is likely that the FED will continue to increase the federal funds rate when it meets in early 2023, though at a slower pace, and in fact did so on February 1, 2023, with a 25 basis point increase. In addition, the FED has continued to reduce its balance sheet as it allows maturing bonds to runoff without re-investing the proceeds. The increases in the federal funds rate will be favorable to the Company’s interest-based revenues. However, the FED's current policies, which are intended to reduce inflation, are also likely to reduce economic activity possibly leading to a recession. Such increases, while bringing down inflationary pressures may also prove detrimental to economic activity and thereby to financial markets in general. The impact of rate increases seems likely to increase volatility in financial markets, decrease the value of fixed income investments and negatively impact equity share prices while reducing revenues the Company derives from commissions and from fees based on the value of client assets managed by the Company. However, increases in interest rates will increase fees the Company earns from FDIC-insured deposits of clients through a program offered by the Company, though such increases may be offset if the cash sweep balances decrease. These rate increases will also increase the rates the Company charges on margin balances and have a positive impact on our earnings.
Ukraine War
In February 2022, without provocation, Russia invaded Ukraine. The war has lasted longer than previously anticipated, and it seems likely it will last for an extended period of time as the Ukrainians continue to be more successful than initially expected at turning back Russian forces and as NATO and other countries supply the Ukrainians with armaments and supplies. The European Union and the United States have imposed broad-based sanctions and impounded financial assets of Russia, its companies and various notable Russian individuals. The impact of the sanctions has been to increase the price of hydrocarbons and the costs of various agricultural products produced by both Russia and Ukraine. In addition, the disruption of supplies for those products has further increased inflationary pressures in Europe as well as the rest of the world and in addition has led to significant cutbacks in economic activity due to anticipated shortages of natural gas in the winter period due to actions taken by Russia and OPEC. It has also had the indirect effect of lowering consumer confidence and consumer spending in Europe, all of which could have an adverse impact on financial markets in Europe as well as the U.S. and, thus on our business.
Inflation Reduction Act of 2022
On August 16, 2022, President Biden signed H.R. 5376, commonly referred to as the Inflation Reduction Act (the "IRA"), into law, which includes an excise tax on stock buybacks, a new alternative minimum tax and significant tax incentives for energy and climate initiatives, among other provisions. Effective for repurchases occurring after December 31, 2022, the IRA imposes a nondeductible 1% excise tax on the net value of certain stock that is repurchased during the tax year. The value of stock repurchases subject to the tax is reduced by the value of any stock issued during the tax year. Additionally, effective for tax years beginning after December 31, 2022, the IRA imposes a 15% corporate alternative minimum tax on companies with adjusted financial statement income exceeding $1 billion over a three-year period. While we are currently assessing the impact of the IRA’s provisions, we do not expect it to have a material impact on the Company’s financial statements although buybacks by the Company occurring after December 31, 2022 may be subject to the 1% excise tax.
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COVID-19 PANDEMIC
The Company continues to monitor the effects of the COVID-19 pandemic both on a national level as well as regionally and locally and is responding accordingly. In early March 2020, the Company executed on its Business Continuity Plan whereby the vast majority of our employees began to work remotely with only "essential" employees reporting to our offices. We accomplished this by significantly expanding the use of technology infrastructure that facilitates remote operations. Our ability to avoid significant business disruptions is reliant on the continued ability to support our employees that continue to work remotely. To date, there have been no significant disruptions to our business or control processes as a result of this dispersion of employees. Since the direct impact of the virus has been substantially reduced, we have seen increased attendance at the workplace as local regulations have been loosened, hospital visits reduced and a larger portion of the population vaccinated. Throughout 2022, most of our employees worked under a hybrid arrangement that recognizes the benefits of collaboration and hands-on training associated with in-person engagement, along with the importance of flexibility associated with a work from home/remote option. At the same time, employees from our home office and branch locations continue to work remotely. There can be no assurance at this time that these improvements will continue and we continue to closely monitor the situation.
EXECUTIVE SUMMARY
The results for the full year 2022 are significantly reduced from the prior year’s record levels, largely reflecting the impact of challenging macroeconomic conditions as well as an adverse arbitration decision in 2022. Concerns around whether inflation, rising interest rates and other geopolitical tensions could induce a recession weighed negatively on market sentiment during the year. This resulted in significant declines in transaction volumes and in the valuations of the equity and fixed income markets, which drove a meaningful reduction in both our transaction based revenues and advisory fee revenues. The volatile markets also led to a cooling of equity IPOs, secondary offerings and M&A transaction activity, which negatively impacted our capital markets income.
Nevertheless, in spite of these headwinds, we were able to deliver profitable results for the year owing to the diversity and countercyclical nature of our revenue streams. In particular, bank deposit sweep income and interest income on margin loans increased significantly throughout the year, as both received a benefit from the short-term interest rate increases enacted by the FED. Importantly, while we experienced higher legal expenses during the year, we remain focused on managing our controllable costs and maintaining discipline on our overall expense levels.
The Company continues to maintain a strong balance sheet with a significant excess in regulatory capital. During the year, the Company took advantage of the lower level of its share price to purchase 1,684,287 shares (15%) of its Class A Stock at an average price of $36.00 per share in the open market under its share repurchase program. This resulted in 10,868,556 shares of Class A Stock remaining outstanding at December 31, 2022. We remain confident in the strength of our brand, the resiliency of our businesses and our ability to continue to provide essential investment services to our clients.
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RESULTS OF OPERATIONS
The following table and discussion summarizes the changes in the major revenue and expense categories for the past three
years:
(Expressed in thousands )
For the Years Ended December 31, For the Years Ended December 31,
2022 2021 % Change 2021 2020 % Change
REVENUE
Commissions $ 370,382 $ 401,607 (7.8) $ 401,607 $ 395,097 1.6
Advisory fees 425,615 451,197 (5.7) 451,197 455,261 (0.9)
Investment banking 127,529 435,870 (70.7) 435,870 222,298 96.1
Bank deposit sweep income 104,558 15,557 572.1 15,557 34,829 (55.3)
Interest 60,713 36,482 66.4 36,482 33,477 9.0
Principal transactions, net 21,031 23,984 (12.3) 23,984 27,874 (14.0)
Other 1,113 29,338 (96.2) 29,338 29,831 (1.7)
Total revenue 1,110,941 1,394,035 (20.3) 1,394,035 1,198,667 16.3
EXPENSES
Compensation and related expenses 740,827 886,840 (16.5) 886,840 770,997 15.0
Communications and technology 85,474 80,520 6.2 80,520 82,132 (2.0)
Occupancy and equipment costs 59,897 60,069 (0.3) 60,069 62,352 (3.7)
Clearing and exchange fees 25,566 22,306 14.6 22,306 22,978 (2.9)
Interest 23,846 9,855 142.0 9,855 15,680 (37.1)
Other 129,777 109,804 18.2 109,804 75,528 45.4
Total expenses 1,065,387 1,169,394 (8.9) 1,169,394 1,029,667 13.6
Pre-tax income 45,554 224,641 (79.7) 224,641 169,000 32.9
Income taxes 13,444 65,677 (79.5) 65,677 46,014 42.7
Net Income $ 32,110 $ 158,964 (79.8) $ 158,964 $ 122,986 29.3
Net income (loss) attributable to noncontrolling interest, net of tax (241) — * — — *
Net income attributable to Oppenheimer Holdings Inc. $ 32,351 $ 158,964 (79.6) $ 158,964 $ 122,986 29.3
*Percentage not meaningful
Fiscal 2022 compared to Fiscal 2021
Revenue
• Commission revenue was $370.4 million for the year ended December 31, 2022, a decrease of 7.8% compared with $401.6 million for the year ended December 31, 2021 due to decreased client activity in mutual funds, listed securities, OTC products and annuities, partially offset by higher commission income on municipal bonds.
• Advisory fees were $425.6 million for the year ended December 31, 2022, a decrease of 5.7% compared with $451.2 million for the year ended December 31, 2021 due to the reduced valuations of assets under management.
• Investment banking revenue was $127.5 million for the year ended December 31, 2022, a decrease of 70.7% compared with $435.9 million for the year ended December 31, 2021 driven by an industry-wide decrease in M&A transactions, and significantly lower levels of capital issuances in the equity markets, particularly in the healthcare and technology sectors.
• Bank deposit sweep income was $104.6 million for the year ended December 31, 2022, an increase of 572.1% compared with $15.6 million for the year ended December 31, 2021 due to significantly higher short-term interest rates.
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• Interest revenue was $60.7 million for the year ended December 31, 2022, an increase of 66.4% compared with $36.5 million in 2021 due to higher average margin balances and higher short-term interest rates.
• Principal transactions revenue was $21.0 million for the year ended December 31, 2022, a decrease of 12.3% compared with $24.0 million for the year ended December 31, 2021 driven by lower income from investment grade, high yield, Emerging Markets, and municipal bonds partially offset by higher income from U.S. government securities.
• Other revenue was $1.1 million for the year ended December 31, 2022, a decrease of 96.2% compared to $29.3 million for the year ended December 31, 2021 primarily due to a decrease in the cash surrender value of Company-owned life insurance during 2022, which fluctuates based on changes in fair value of the policies' underlying investments.
Expenses
• Compensation and related expenses totaled $740.8 million during the year ended December 31, 2022, a decrease of 16.5% compared with the year ended December 31, 2021 due to decreased incentive compensation costs. Compensation and related expenses as a percentage of revenue was 66.7% for the year ended December 31, 2022 compared with 63.6% for the year ended December 31, 2021.
• Non-compensation expenses were $324.6 million during the year ended December 31, 2022, an increase of 14.9% compared with $282.6 million during the year ended December 31, 2021 due to higher legal costs recorded during third quarter of 2022 which related to an adverse arbitration decision.
• The effective income tax rate for the year ended December 31, 2022 was 29.5% compared with 29.2% for the year ended December 31, 2021.
Fiscal 2021 compared to Fiscal 2020
Revenue
• Commission revenue was $401.6 million for the year ended December 31, 2021, an increase of 1.6% compared with $395.1 million for the year ended December 31, 2020 due to increased client activity in mutual funds, options, annuities, and mortgage backed securities partially offset by lower commission income on municipal bonds.
• Advisory fees were $451.2 million for the year ended December 31, 2021, a decrease of 0.9% compared with $455.3 million for the year ended December 31, 2020 due to a significant decrease in incentive fees from alternative investments partially offset by higher management fees from advisory programs during 2021.
• Investment banking revenue was $435.9 million for the year ended December 31, 2021, an increase of 96.1% compared with $222.3 million for the year ended December 31, 2020 driven by increased M&A activity and fees associated with a significant number of capital raising transactions (PIPES) in the healthcare and technology sectors completed during the 2021 year.
• Bank deposit sweep income was $15.6 million for the year ended December 31, 2021, a decrease of 55.3% compared with $34.8 million for the year ended December 31, 2020 due to lower short-term interest rates partially offset by higher average cash sweep balances.
• Interest revenue was $36.5 million for the year ended December 31, 2021, an increase of 9.0% compared with $33.5 million in 2020 due to higher average margin balances partially offset by lower short-term interest rates.
• Principal transactions revenue was $24.0 million for the year ended December 31, 2021, a decrease of 14.0% compared with $27.9 million for the year ended December 31, 2020 driven by lower income from investment grade, high yield, Emerging Markets, and municipal bonds partially offset by higher income from corporate and convertible bonds.
• Other revenue was $29.3 million for the year ended December 31, 2021, a decrease of 1.7% compared to $29.8 million for the year ended December 31, 2020 primarily due to a decrease in the cash surrender value of Company-owned life insurance during 2021.
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Expenses
• Compensation and related expenses totaled $886.8 million during the year ended December 31, 2021, an increase of 15.0% compared with the year ended December 31, 2020. The increase was due to increased incentive compensation costs during the year tied to significant increases in revenue during the year ended December 31, 2021. Compensation and related expenses as a percentage of revenue was 63.6% for the year ended December 31, 2021 compared with 64.3% for the year ended December 31, 2020.
• Non-compensation expenses were $282.6 million during the year ended December 31, 2021, an increase of 9.2% compared with $258.7 million during the year ended December 31, 2020 due to increased legal, underwriting, travel and entertainment, and conference costs partially offset by reduced interest costs during the year ended December 31, 2021.
BUSINESS SEGMENTS
The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three months and years ended December 31, 2022 and 2021:
(Expressed in thousands)
For the Three Months Ended December 31, For the Years Ended December 31,
2022 2021 % Change 2022 2021 % Change
Revenue
Private Client $ 201,748 $ 173,310 16.4 $ 675,680 $ 665,060 1.6
Asset Management 22,940 27,930 (17.9) 99,242 104,598 (5.1)
Capital Markets 90,549 165,575 (45.3) 337,821 625,704 (46.0)
Corporate/Other (1,657) (1,697) (2.4) (1,802) (1,327) 35.8
Total 313,580 365,118 (14.1) 1,110,941 1,394,035 (20.3)
Pre-Tax Income (Loss)
Private Client 49,331 17,784 177.4 142,250 101,146 40.6
Asset Management 9,837 10,270 (4.2) 35,753 35,874 (0.3)
Capital Markets (11,328) 96,838 * (25,696) 204,090 *
Corporate/Other (17,568) (32,940) (46.7) (106,753) (116,469) 8.3
Total $ 30,272 $ 91,952 (67.1) $ 45,554 $ 224,641 (79.7)
* Percentage not meaningful
Private Client
Private Client reported revenue of $675.7 million for the year ended December 31, 2022, 1.6% higher compared with the prior year. Pre-tax income was $142.3 million, an increase of 40.6% from the prior year. Financial advisor headcount declined amid retirements to 968 at the end of 2022 compared to 996 at the end of 2021.
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(Expressed in thousands, except financial advisor headcount or otherwise indicated)
For the Years Ended December 31,
2022 2021 % Change
Revenue $ 675,680 $ 665,060 1.6
Commissions 190,614 217,724 (12.5)
Advisory fees 326,240 346,559 (5.9)
Bank deposit sweep income 104,558 15,557 572.1
Interest 51,866 29,290 77.1
Other 2,402 55,930 (95.7)
Total Expenses $ 533,430 $ 563,914 (5.4)
Compensation 377,671 446,968 (15.5)
Non-compensation 155,759 116,946 33.2
Pre-Tax Income $ 142,250 $ 101,146 40.6
Compensation Ratio 55.9 % 67.2 % (16.8)
Non-compensation Ratio 23.1 % 17.6 % 31.3
Pre-Tax Margin 21.1 % 15.2 % 38.8
AUA (billions) $ 105.0 $ 122.1 (14.0)
Cash Sweep Balances (billions) $ 5.5 $ 7.9 (30.4)
Financial Advisor Headcount 968 996 (2.8)
• Retail commissions decreased 12.5% from the prior year primarily due to decreased client activity in mutual funds, listed securities, OTC products and annuities, partially offset by higher commission income on municipal bonds.
• Advisory fees decreased 5.9% due to the reduced valuations of assets under management.
• Bank deposit sweep income increased $89.0 million or 572.1% from the prior year due to significant increases in short-term interest rates.
• Interest revenue increased 77.1% from the prior year due to higher average margin balances and higher short-term interest rates.
• Other revenue declined 95.7% compared with the prior year primarily due to decreases in the cash surrender value of Company-owned life insurance policies which fluctuates based on changes in fair value of the policies' underlying investments.
• Compensation expenses decreased 15.5% from the prior year primarily due to decreased production, share-based and incentive compensation costs, partially offset by the inflationary impact on salaries.
• Non-compensation expenses increased 33.2% from the prior year primarily due to higher legal costs recorded during third quarter of 2022 which related to an adverse arbitration decision.
Asset Management
Asset Management reported revenue of $99.2 million for the year ended December 31, 2022, 5.1% lower compared with the prior year. Pre-tax income was $35.8 million, a decrease of 0.3% compared with the prior year.
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(Expressed in thousands, unless otherwise indicated)
For the Years Ended December 31,
2022 2021 % Change
Revenue $ 99,242 $ 104,598 (5.1)
Advisory fee revenue 99,224 104,584 (5.1)
Other 18 14 28.6
Total Expenses $ 63,489 $ 68,724 (7.6)
Compensation 24,261 27,811 (12.8)
Non-compensation 39,228 40,913 (4.1)
Pre-Tax Income $ 35,753 $ 35,874 (0.3)
Compensation Ratio 24.4 % 26.6 % (8.3)
Non-compensation Ratio 39.5 % 39.1 % 1.0
Pre-Tax Margin 36.0 % 34.3 % 5.0
AUM (billions) $ 36.8 $ 46.2 (20.3)
• Advisory fee revenue on traditional and alternative managed products decreased 5.1% from the prior year primarily due to lower management fees from advisory programs, partially offset by higher incentive fees from alternative investments during the year.
• AUM were at reduced levels of $36.8 billion at December 31, 2022, which is the basis for advisory fee billings for January 2023. The decrease in AUM from December 31, 2021 to December 31, 2022 was comprised of lower asset values of $7.6 billion on existing client holdings and a net distribution of assets of $1.8 billion.
• Compensation expenses were down 12.8% when compared to the prior year driven primarily by lower incentive compensation costs.
• Non-compensation expenses were down 4.1% when compared to the prior year primarily due to lower external portfolio management costs which are directly related to the decrease in AUM, partially offset by an increase in total communications and technology expenses.
The following table provides a breakdown of the change in assets under management for the year ended December 31, 2022:
(Expressed in millions)
For the Year Ended December 31, 2022
Beginning
Balance Appreciation
(Depreciation) Ending
Balance
Fund Type Contributions Redemptions
Traditional (1)
$ 37,832 $ 5,356 $ (6,253) $ (5,522) $ 31,413
Institutional Fixed Income (2)
869 109 (70) (72) 836
Alternative Investments:
Hedge funds (3)
4,678 170 (275) (1,532) 3,041
Private Equity Funds (4)
2,444 159 (965) (486) 1,152
Portfolio Enhancement Program (5)
380 10 (37) (1) 352
$ 46,203 $ 5,804 $ (7,600) $ (7,613) $ 36,794
(1) Traditional investments include third party advisory programs, Oppenheimer financial advisor managed and advisory programs, and Oppenheimer Asset Management taxable and tax-exempt portfolio management strategies.
(2) Institutional fixed income provides solutions to institutional investors including: Taft-Hartley Funds, Public Pension Funds, Corporate Pension Funds, and Foundations and Endowments.
(3) Hedge funds represent single manager hedge fund strategies in areas including hedged equity, technology and financial services, and multi-manager and multi-strategy fund of funds.
(4) Private equity funds represent private equity fund of funds including portfolios focused on natural resources and related assets.
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(5) The portfolio enhancement program sells uncovered, far out-of-money puts and calls on the S&P 500 Index. The program is market neutral and uncorrelated to the index. Valuation is based on collateral requirements for a series of contracts representing the investment strategy.
Capital Markets
Capital Markets reported revenue of $337.8 million for the year ended December 31, 2022, 46.0% lower compared with the prior year. Pre-tax loss was $25.7 million compared with a pre-tax income of $204.1 million for the prior year.
(Expressed in thousands )
For the Years Ended December 31,
2022 2021 % Change
Revenue $ 337,821 $ 625,704 (46.0)
Investment Banking $ 117,101 $ 410,539 (71.5)
Advisory fees 84,569 194,753 (56.6)
Equities underwriting 24,583 186,736 (86.8)
Fixed income underwriting 8,898 27,004 (67.0)
Other (949) 2,046 *
Sales and Trading $ 217,712 $ 213,491 2.0
Equities 141,013 138,363 1.9
Fixed income 76,699 75,128 2.1
Other $ 3,008 $ 1,674 79.7
Total Expenses $ 363,517 $ 421,614 (13.8)
Compensation 260,974 318,850 (18.2)
Non-compensation 102,543 102,764 (0.2)
Pre-Tax Income (Loss) $ (25,696) $ 204,090 *
Compensation Ratio 77.3 % 51.0 % 51.6
Non-compensation Ratio 30.4 % 16.4 % 85.4
Pre-Tax Margin (7.6) % 32.6 % *
* Percentage not meaningful
• Advisory fees earned from investment banking activities decreased 56.6% compared with the prior year driven by an industry-wide decrease in M&A transactions.
• Equities underwriting fees decreased 86.8% compared with the prior year due to significantly lower levels of capital issuances in the equity markets, particularly in the healthcare and technology sectors.
• Fixed income underwriting fees were down 67.0% compared with the prior year primarily driven by fewer public finance debt issuances during the year.
• Equities sales and trading increased 1.9% compared with the prior year.
• Fixed income sales and trading increased 2.1% compared with the prior year driven by higher trading income from U.S. government securities.
• Compensation expenses decreased 18.2% compared with the prior year primarily due to decreased incentive compensation costs.
• Non-compensation expenses were 0.2% lower compared with the prior year.
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CRITICAL ACCOUNTING ESTIMATES
The Company's accounting estimates are essential to understanding and interpreting the financial results reported on the consolidated financial statements. The significant accounting policies used in the preparation of the Company's consolidated financial statements are summarized in note 2 to those statements. Certain of those policies are considered to be particularly important to the presentation of the Company's financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain. The following is a discussion of these estimates:
Fair Value Measurements
Critical estimates - The accounting guidance for the fair value measurement (ASC 820) of financial assets defines fair value, establishes a framework for measuring fair value, establishes a fair value measurement hierarchy, and expands fair value measurement disclosures. Fair value, as defined by the accounting guidance, is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability.
Assumption and judgement - The fair value hierarchy established by ASC 820 prioritizes the inputs used in valuation techniques into the following three categories (highest to lowest priority):
• Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
• Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and
• Unobservable inputs that are significant to the overall fair value measurement.
The availability of observable inputs can vary for different products. We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity. Financial instruments are classified as Level 3 if observable pricing inputs are not available due to limited market activity for the asset or liability. The valuation of financial instruments are classified in Level 3 of the fair value hierarchy and consists of valuation techniques that incorporate one or more significant unobservable inputs, and therefore requires the greatest amount of management judgment. As of December 31, 2022, the Company had $31.8 million in financial instruments, comprised of auction rate securities, classified within Level 3 of the fair value hierarchy. See note 7 to the consolidated financial statements appearing in Item 8 for further information on the fair value definition, Level 1, Level 2 and Level 3 and related valuation techniques.
I mpact if actual results differ from assumptions – We established an independent valuation process to evaluate and approve the valuation of our financial instruments. For financial instruments that are classified in Level 3, we review the appropriateness of the unobservable inputs to ensure consistency with how a market participant would arrive at the unobservable input. Although an independent review process is in place, the fair value of the Level 3 financial instrument could be significantly different due to the sensitivity of some unobservable inputs (for example, interest rates) and any such difference could also have a material adverse effect on our consolidated financial statements.
Legal and Regulatory Reserves
Critical estimates – In the normal course of business, the Company has been named as defendant or co-defendant in various legal actions, including arbitrations, class actions and other litigation, creating substantial exposure and periodic expenses. Management is required to assess the probability of loss and estimate the amount of such loss when preparing its consolidated financial statements.
Assumption and judgement - The determination of the levels of these reserves requires significant judgment on the part of management. In accordance with applicable accounting guidance, we established reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and we can reasonably estimate the amount of that loss. When loss contingencies are not probable or cannot be reasonably estimated, we do not establish reserves. When determining whether to record a reserve, management considers many factors including, but not limited to, the amount of the claim; the stage and forum of the proceeding, the sophistication of the claimant, the amount of the loss, if any, in the client's account and the possibility of wrongdoing, if any, on the part of an employee of the Company; the basis and validity of the claim; previous results in similar cases; and applicable legal precedents and case law. Each legal and regulatory proceeding is reviewed with counsel in each accounting period and the reserve is
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adjusted as deemed appropriate by management. Any change in the reserve amount is recorded in the results of that period. See note 17 to the consolidated financial statements appearing in Item 8 for further details.
Impact if actual results differ from assumptions – Due to the inherent uncertainties of the legal and regulatory proceedings, our judgement may be materially different from the actual outcome. The assumptions we used to determine the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount.
Income Taxes
Critical estimates – We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. We are also subject to the tax laws of our international subsidiaries and branches. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. We record uncertain tax positions in accordance with ASC 740, "Income Taxes", on the basis of a two-step process whereby we determined whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and, for those tax positions that meet the more-likely-than-not recognition threshold, we will recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Assumption and judgement - We recognize deferred tax assets to the extent we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and the results of recent operations. In establishing a provision for income tax expense, we must make judgements and interpretations about the application of these inherently complex tax laws. We estimate when certain items will affect taxable income in the various jurisdictions in the future. We are also required to evaluate and measure all uncertain tax positions taken or expected to be taken on tax returns and to record liabilities for the amount of such positions that may not be sustained, or may only be partially sustained, upon examination by the relevant taxing authorities. See note 15 to the consolidated financial statements appearing in Item 8 for further details.
Impact if actual results differ from assumptions – Although we believe that our estimates and judgements are reasonable, actual results may differ from these estimates. Some or all of these judgements are subject to review by the relevant taxing authorities. If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we recorded, and we were not able to realize this benefit, our effective income tax rate in a given financial statement period could be materially affected and it could also have a material adverse effect on our consolidated financial statements.
New Accounting Pronouncements
The potential impact of recently issued accounting pronouncements are described in note 2 to the consolidated financial statements appearing in Item 8.
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased by 10.8% from December 31, 2021 to December 31, 2022. The Company satisfies its need for short-term financing from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, and uncommitted lines of credit. We finance our trading in government securities through the use of securities sold under agreements to repurchase ("repurchase agreements"). We met our longer-term capital needs through the issuance of the 5.50% Senior Secured Notes due 2025 (see "Senior Secured Notes" below). Oppenheimer has arrangements with banks for borrowings on a fully-collateralized basis. The amount of Oppenheimer's bank borrowings fluctuates in response to changes in the level of the Company's securities inventories and customer margin debt, changes in notes receivable from employees, investment in furniture, equipment and leasehold improvements, changes in stock loan balances and financing through repurchase agreements. At December 31, 2022, the Company had no such borrowings outstanding compared to outstanding borrowings of $69.5 million at December 31, 2021. The Company also has some availability of short-term bank financing on an unsecured basis.
The Company's overseas subsidiaries, Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited, are subject to local regulatory capital requirements that restrict our ability to utilize their capital for other purposes. The regulatory capital requirements for Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited were $5.14 million and $383,963, respectively, at December 31, 2022. The liquid assets at Oppenheimer Europe Ltd. are primarily comprised of cash deposits in bank accounts.
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The liquid assets at Oppenheimer Investments Asia Limited are primarily comprised of investments in U.S. Treasuries and cash deposits in bank accounts. Any restrictions on transfer of these liquid assets from Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited to the Company or its other subsidiaries would be limited by regulatory capital requirements.
The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if these earnings were repatriated. The unrecognized deferred tax liability associated with the outside basis difference of its foreign subsidiaries is estimated at $3.5 million for those subsidiaries. We have continued to reinvest permanently the excess earnings of Oppenheimer Israel (OPCO) Ltd. in its own business and in the businesses in Europe and Asia to support business initiatives in those regions. We will continue to review our historical treatment of these earnings to determine whether our historical practice will continue or whether a change is warranted.
Senior Secured Notes
On September 22, 2020, in a private offering, we issued $125.0 million aggregate principal amount of 5.50% Senior Secured Notes due 2025 (the "Unregistered Notes") under an Indenture at an issue price of 100% of the principal amount. Interest on the Unregistered Notes is payable semi-annually on April 1st and October 1st. We used the net proceeds from the offering of the Unregistered Notes, along with cash on hand, to redeem in full our 6.75% Senior Secured Notes due July 1, 2022 in the principal amount of $150.0 million (the Company held $1.4 million in treasury for a net outstanding amount of $148.6 million), and pay all related fees and expenses related thereto. On November 23, 2020, we completed an exchange offer in which we exchanged 99.8% of our Unregistered Notes for a like principal amount of notes with identical terms except that such new notes have been registered under the Securities Act of 1933, as amended (the "Notes"). We did not receive any proceeds in the exchange offer.
During the fourth quarter of 2022, the Company repurchased and subsequently cancelled $10.95 million of the 5.50% Senior Secured Notes, recognizing a small extinguishment gain. As of December 31, 2022, $114.05 million aggregate principal amount of the Notes remain outstanding. See note 12 to the consolidated financial statements appearing in Item 1 for further discussion.
The Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by E.A. Viner International Co. and Viner Finance Inc. (together, the "Guarantors"), unless released as described below. Each of the Guarantors is 100% owned by the Parent. The indenture for the Notes contains covenants with restrictions which are discussed in note 12.
The guarantees are senior secured obligations of each Guarantor. The guarantees rank:
• effectively senior in right of payment to all unsecured and unsubordinated obligations of such Guarantor, to the extent of the value of the collateral owned by such Guarantor (and, to the extent of any unsecured remainder after payment of the value of the collateral, rank equally in right of payment with such unsecured and unsubordinated indebtedness of such Guarantor); and
• senior in right of payment to any subordinated debt of such Guarantor ( The Notes are secured on a first-priority basis by the collateral, subject to certain exceptions and permitted liens, and it is intended that pari passu lien indebtedness, if any, will be secured on an equal and ratable basis).
Each subsidiary guarantee is limited so that it does not constitute a fraudulent conveyance under applicable law, which may reduce the subsidiary’s obligation under the guarantee. There are no externally imposed restrictions on transfers of assets between the Company and its subsidiaries.
Each Guarantor will be automatically and unconditionally released and discharged upon: the sale, exchange or transfer of the capital stock of a Guarantor and the Guarantor ceasing to be a direct or indirect subsidiary of the Parent if such sale does not constitute an asset sale under the Indenture for the Notes or does not constitute an asset sale effected in compliance with the asset sale and merger covenants of the Indenture for the Notes; a Guarantor being dissolved or liquidated; a Guarantor being designated unrestricted in compliance with the applicable provisions of the Notes; or the exercise by the Parent of its legal defeasance option or covenant defeasance option or the discharge of the Parent's obligations under the Indenture for the Notes in accordance with the terms of such Indenture.
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The following tables present results of operations for the twelve months ended December 31, 2022 and balance sheet at December 31, 2022 for the Parent and Guarantors.
(Expressed in thousands) As of
December 31, 2022
Total Assets $ 2,037,404
Due From Non-Guarantor Subsidiary 15,596
Total Liabilities 541,605
Due To Non-guarantor Subsidiary 5,412
For the Year Ended
December 31, 2022
Total Revenue $ 10,310
Pre-Tax Loss 297
Net Loss 203
On June 17, 2021, S&P upgraded the Company's Corporate Family rating and rating on the Unregistered Notes from 'B+' with a stable outlook to 'BB-' with a stable outlook. On August 23, 2021, Moody’s upgraded the Company's Corporate Family rating and the rating on the Unregistered Notes from “B1” with a stable outlook to “Ba3” with a stable outlook.
Liquidity
For the most part, the Company's assets consist of cash and cash equivalents and assets that it can readily convert into cash. The receivable from brokers, dealers and clearing organizations represents deposits for securities borrowed transactions, margin deposits or current transactions awaiting settlement. The receivable from customers represents margin balances and amounts due on transactions awaiting settlement. Our receivables are, for the most part, collateralized by marketable securities. Our collateral maintenance policies and procedures are designed to limit our exposure to credit risk. Securities owned, with the exception of the ARS, are mainly comprised of actively trading, readily marketable securities. We advanced $19.8 million in forgivable notes (which are inherently illiquid) to employees for the year ended December 31, 2022 ($22.1 million for the year ended December 31, 2021) as upfront or backend inducements to commence or continue employment as the case may be. The amount of funds allocated to such inducements will vary with hiring activity.
We satisfy our need for short-term liquidity from internally generated funds, collateralized and uncollateralized bank borrowings, stock loans and repurchase agreements and warehouse facilities. Bank borrowings are, in most cases, collateralized by firm and customer securities.
We obtain short-term borrowings primarily through bank call loans. Bank call loans are generally payable on demand and bear interest at various rates. At December 31, 2022, bank call loans were zero ($69.5 million at December 31, 2021). The average daily bank loan outstanding for the year ended December 31, 2022 was $79.4 million ($76.4 million for the year ended December 31, 2021). The largest daily bank loan outstanding for the year ended December 31, 2022 was $226.6 million ($227.7 million for the year ended December 31, 2021).
At December 31, 2022, securities loan balances totaled $320.8 million ($244.2 million at December 31, 2021). The average daily securities loan balance for the year ended December 31, 2022 was $297.6 million ($285.2 million for the year ended December 31, 2021). The largest daily stock loan balance for the year ended December 31, 2022 was $350.1 million ($322.2 million for the year ended December 31, 2021).
We finance our government trading operations through the use of securities purchased under agreements to resell ("reverse repurchase agreements") and repurchase agreements. Except as described below, repurchase and reverse repurchase agreements, principally involving government and agency securities, are carried at amounts at which securities subsequently will be resold or reacquired as specified in the respective agreements and include accrued interest.
Repurchase and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase and reverse repurchase agreements are executed with the same counterparty, have the same explicit settlement date, are executed in accordance with a master netting arrangement, the securities underlying the repurchase and reverse repurchase agreements exist in "book entry" form and certain other requirements are met.
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Certain of our repurchase agreements and reverse repurchase agreements are carried at fair value as a result of the Company's fair value option election. We elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date in order for these instruments to more accurately reflect market and economic events in our earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. At December 31, 2022, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.
At December 31, 2022, the gross balances of reverse repurchase agreements and repurchase agreements were $28.0 million and $189.0 million, respectively. The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the year ended December 31, 2022 was $172.4 million and $356.5 million, respectively ($120.3 million and $352.8 million, respectively, for the year ended December 31, 2021). The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the year ended December 31, 2022 was $663.9 million and $668.3 million, respectively ($424.2 million and $636.7 million, respectively, for the year ended December 31, 2021).
Liquidity Management
We manage our need for liquidity on a daily basis to ensure compliance with regulatory requirements. Our liquidity needs may be affected by market conditions, increased inventory positions, business expansion and other unanticipated occurrences. In the event that existing financial resources do not satisfy our liquidity needs, we may have to seek additional external financing. The availability of such additional external financing may depend on market factors outside our control.
We have Company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans. Certain policies which could provide additional liquidity if needed had a cash surrender value of $74.8 million as of December 31, 2022.
We regularly review our sources of liquidity and financing and conduct internal stress analysis to determine the impact on the Company of events that could remove sources of liquidity or financing and to plan actions the Company could take in the case of such an eventuality. Our reviews have resulted in plans that we believe would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.
Our primary long-term cash requirements include $113.4 million principal outstanding as of December 31, 2022 under our Senior Secured Notes (due in 2025) and $182.6 million of operating lease obligations. The total cash requirement for interest expense related to the Notes and operating lease obligations is estimated to be approximately $17.6 million for the 2023 year.
Funding Risk
(Expressed in thousands)
For the Years Ended December 31,
2022 2021
Cash provided by operating activities $ 64,492 $ 227,786
Cash used in investing activities (14,137) (6,267)
Cash provided by/(used in) financing activities (253,912) 84,581
Net increase/(decrease) in cash and cash equivalents and restricted cash $ (203,557) $ 306,100
Management believes that funds from operations, combined with our capital base and available credit facilities, are sufficient for our liquidity needs in the foreseeable future. Under some circumstances, banks including those on whom we rely may back away from providing funding to the securities industry. Such a development might impact our ability to finance our day-to-day activities or increase the costs to acquire funding. We may or may not be able to pass such increased funding costs on to our clients.
During periods of high volatility, we have seen increased calls for deposits of collateral to offset perceived risk between the Company's settlement liability to industry utilities such as the Options Clearing Corporation (“OCC”) and National Securities Clearing Corp. (“NSCC”) as well as more stringent collateral arrangements with our bank lenders. All such requirements have been met in the ordinary course with available collateral.
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CYBERSECURITY
For many years, we have sought to maintain the security of our clients' data, limit access to our data processing environment, and protect our data processing facilities. See "Risk Factors — Cybersecurity – Security breaches of our technology systems, or those of our clients or other third-party vendors we rely on, could subject us to significant liability and harm our reputation" in Item 1A. Recent examples of vulnerabilities by other companies and the government that have resulted in loss of client data and fraudulent activities by both domestic and foreign actors have caused us to continuously review our security policies and procedures and to take additional actions to protect our network and our information.
Given the importance of the protection of client data, regulators have developed increased oversight of cybersecurity planning and protections that broker-dealers and other financial service providers have implemented. Such planning and protection are subject to the SEC's and FINRA's oversight and examination on a periodic or targeted basis. We expect that regulatory oversight will intensify, as a result of publicly announced data breaches by other organizations involving tens of millions of items of personally identifiable information. We continue to implement protections and adopt procedures to address the risks posed by the current information technology environment. The Company has significantly increased the resources dedicated to this effort and believes that further increases may be required in the future, in anticipation of increases in the sophistication and persistency of such attacks. There can be no guarantee that our cybersecurity efforts will be successful in discovering or preventing a security breach.
REGULATORY MATTERS AND DEVELOPMENTS
Regulation Best Interest (U.S.)
On June 5, 2019, the SEC adopted Regulation Best Interest (“Reg BI”) as Rule 15l-1 under the Exchange Act. Reg BI imposes a federal standard of conduct on registered broker-dealers and their associated persons when dealing with retail clients and requires that a broker-dealer and its representatives act in the best interest of clients and not place its own interests ahead of the customer’s interests. Reg BI does not define the term “best interest” but instead sets forth four distinct obligations, disclosure, care, conflict of interest and compliance that a broker-dealer must satisfy in each transaction. Compliance with Reg BI became effective on June 30, 2020. In addition to adopting Reg BI, the SEC adopted rules (i) requiring broker-dealers and investment advisers to provide a written relationship summary to each client, and (ii) clarifying certain interpretations under the Investment Advisers Act of 1940 including but not limited to when a broker-dealer's activity is considered “solely incidental” to its broker-dealer business and is, therefore, not considered investment advisory activity (collectively, the “Reg BI Rules”).
Reg BI requires enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the cessation of certain practices and limitations on certain kinds of transactions previously conducted in the normal course of business. The new rules and processes related thereto may limit revenue and most likely will involve increased costs, including, but not limited to, compliance costs associated with new or enhanced technology as well as increased litigation costs. The Company made significant structural, technological and operational changes to our business practices to comply with the requirements of the Reg BI Rules and it is likely that additional changes may be necessary to continue to comply as more experience with the Reg BI Rules is gained. Regulators have commenced reviews of the industry’s compliance with the requirements of Reg BI, including that of the Company.
See “Business – Regulation – Fiduciary Standard – Rulemaking by the U.S. Department of Labor and SEC” in Part I, Item 1.
On December 18, 2020, the DOL published its final prohibited transaction exemption (“PTE”) addressing investment advice fiduciaries to ERISA plans and IRAs. Similar to the proposal the DOL released in June of 2020 the PTE takes a principles-based (rather than a prescriptive) approach to resolving conflicts that arise under ERISA when an investment advice fiduciary, its affiliate or a related party is paid certain types of compensation (such as commissions, trailing fees or revenue-sharing) or engages in certain principal transactions. The PTE should provide a new and more flexible approach to ERISA compliance for certain types of transactions, which financial institutions may choose to utilize in place of other existing exemptions. Like the proposal (but in contrast to the precursor rule the DOL finalized in April 2016 that the U.S. Court of Appeals for the Fifth Circuit later vacated in June 2018), the PTE does not materially change the scope of fiduciary activities under ERISA, with the exception of including certain rollover-related advice as fiduciary advice. The effective date for compliance with the PTE was February 1, 2022. The Company believes many of the steps taken by the Company to achieve compliance with the Reg BI Rules will enable the Company to comply with the PTE. The Company implemented certain additional processes beyond the actions taken to comply with the Reg BI Rules in order to ensure full compliance with the PTE.
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Regulatory Environment
See the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in Item 1 “Business - Regulation” herein for additional information.
Oppenheimer and many of its affiliates are each subject to various regulatory capital requirements. As of December 31, 2022, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. See “Business – Regulatory - Regulatory Capital Requirements” in Part I, Item 1 and note 18 of the Notes to Consolidated Financial Statements in Item 8 for further information on regulatory capital requirements.
Other Regulatory Matters
On November 18, 2022, the Company received an information request from the SEC requesting information relating to the use of text messaging and similar forms of electronic communications by employees of the Company and whether those communications were properly retained by the Company as part of its records preservation requirements relating to the broker-dealer or investment adviser business activities of the Company. The Company has responded to the information request and continues to cooperate with the SEC inquiry.
FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"
From time to time, the Company may publish or make oral statements that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 which provides a safe harbor for forward-looking statements. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues, earnings, liabilities or expenses, business prospects, projected ventures, new products, anticipated market performance, and similar matters. The Company cautions readers that a variety of factors could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. These risks and uncertainties, many of which are beyond the Company’s control, include, but are not limited to: (i) transaction volume in the securities markets, (ii) the volatility of the securities markets, (iii) fluctuations in interest rates, (iv) changes in regulatory requirements that could affect the cost and method of doing business, (v) general economic conditions, both domestic and international, (vi) competition from existing financial institutions, new entrants and other participants in the securities markets and financial services industry, (vii) cybersecurity threats, (viii) legal developments affecting the litigation experience of the securities industry and the Company, (ix) changes in foreign, federal and state tax laws that could affect the popularity of products sold by the Company or impose taxes on securities transactions, including the Inflation Reduction Act. (x) the adoption and implementation of the SEC’s “Regulation Best Interest” and other regulations adopted in recent years, (xi) war, terrorist acts and nuclear confrontation as well as political unrest, including events relating to Russia’s invasion of Ukraine and Western sanctions, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU(“Brexit”) and economic uncertainty in the UK, EU, and elsewhere, (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, political and social unrest, government shutdowns and investigations, trade wars, changes in or uncertainty surrounding regulation, and the potential for default by the U.S. government on the nation's debt, (xviii) risks related to changes in capital requirements under international standards that may cause banks to back away from providing funding to the securities industry, and (xix) risks related to the severity and duration of the COVID-19 Pandemic; the COVID-19 Pandemic’s impact on the U.S. and global economies; and federal, state and local governmental responses to the COVID-19 Pandemic. There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company's business. See “Risk Factors” in Part I, Item 1A.
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