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Fair Value of Financial Assets and Liabilities | 3 Months Ended
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Mar. 31, 2018
Fair Value Disclosures [Abstract] |
Fair Value of Financial Assets and Liabilities |
13. | Fair Value of Financial Assets and Liabilities
Fair Value Measurements on a Recurring Basis U.S. GAAP guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly. Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. As required by U.S. GAAP guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under U.S. GAAP guidance at March 31, 2018 and December 31, 2017 (in thousands):
|  | Assets at Fair Value at March 31, 2018 |
|  | Level 1 |  |  | Level 2 1 |  |  | Level 3 |  |  | Netting and Collateral |  |  | Total |
Loans held for sale, at fair value |  | $ | — |  |  | $ | 965,639 |  |  | $ | — |  |  | $ | — |  |  | $ | 965,639 |
Marketable securities |  |  | 96,061 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 96,061 |
Government debt |  |  | 88,577 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 88,577 |
Securities owned—Equities |  |  | 780 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 780 |
Forwards |  |  | — |  |  |  | 213 |  |  |  | 9,687 |  |  |  | (12 | ) |  |  | 9,888 |
Rate lock commitments |  |  | — |  |  |  | — |  |  |  | 8,750 |  |  |  | — |  |  |  | 8,750 |
Foreign exchange/commodities options |  |  | 102,667 |  |  |  | — |  |  |  | — |  |  |  | (98,736 | ) |  |  | 3,931 |
Futures |  |  | — |  |  |  | 43,541 |  |  |  | — |  |  |  | (42,308 | ) |  |  | 1,233 |
Foreign exchange swaps |  |  | — |  |  |  | 1,249 |  |  |  | — |  |  |  | (306 | ) |  |  | 943 |
Total |  | $ | 288,085 |  |  | $ | 1,010,642 |  |  | $ | 18,437 |  |  | $ | (141,362 | ) |  | $ | 1,175,802 |
1 In addition, the Company has equity securities with a fair value of approximately $30.9 million which are recorded in “Other Assets” in the Company’s unaudited condensed consolidated statements of financial condition as of March 31, 2018. These investments are remeasured to fair value on a non-recurring basis and are classified within Level 2 in the fair value hierarchy.
|  | Liabilities at Fair Value at March 31, 2018 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Netting and Collateral |  |  | Total |
Rate lock commitments |  | $ | — |  |  | $ | — |  |  | $ | 8,980 |  |  | $ | — |  |  | $ | 8,980 |
Forwards |  |  | — |  |  |  | 227 |  |  |  | 2,421 |  |  |  | (12 | ) |  |  | 2,636 |
Futures |  |  | — |  |  |  | 43,118 |  |  |  | — |  |  |  | (42,308 | ) |  |  | 810 |
Foreign exchange swaps |  |  | — |  |  |  | 1,033 |  |  |  | — |  |  |  | (306 | ) |  |  | 727 |
Foreign exchange/commodities options |  |  | 98,736 |  |  |  | — |  |  |  | — |  |  |  | (98,736 | ) |  |  | — |
Contingent consideration |  |  | — |  |  |  | — |  |  |  | 59,242 |  |  |  | — |  |  |  | 59,242 |
Total |  | $ | 98,736 |  |  | $ | 44,378 |  |  | $ | 70,643 |  |  | $ | (141,362 | ) |  | $ | 72,395 |
|  | Assets at Fair Value at December 31, 2017 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Netting and Collateral |  |  | Total |
Loans held for sale, at fair value |  | $ | — |  |  | $ | 362,635 |  |  | $ | — |  |  | $ | — |  |  | $ | 362,635 |
Marketable securities |  |  | 208,176 |  |  | — |  |  | — |  |  | — |  |  |  | 208,176 |
Government debt |  |  | 32,744 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 32,744 |
Securities owned—Equities |  |  | 263 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 263 |
Foreign exchange/commodities options |  |  | 31,834 |  |  | — |  |  | — |  |  |  | (27,418 | ) |  |  | 4,416 |
Forwards |  |  | — |  |  |  | 610 |  |  |  | 3,753 |  |  |  | (101 | ) |  |  | 4,262 |
Rate lock commitments |  |  | — |  |  | — |  |  |  | 2,923 |  |  | — |  |  |  | 2,923 |
Foreign exchange swaps |  |  | — |  |  |  | 1,135 |  |  |  | — |  |  |  | (334 | ) |  |  | 801 |
Interest rate swaps |  |  | — |  |  |  | 242 |  |  | — |  |  | — |  |  |  | 242 |
Futures |  |  | — |  |  |  | 78,969 |  |  |  | — |  |  |  | (78,944 | ) |  |  | 25 |
Total |  | $ | 273,017 |  |  | $ | 443,591 |  |  | $ | 6,676 |  |  | $ | (106,797 | ) |  | $ | 616,487 |
|  | Liabilities at Fair Value at December 31, 2017 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Netting and Collateral |  |  | Total |
Foreign exchange swaps |  | $ | — |  |  | $ | 3,180 |  |  | $ | — |  |  | $ | (334 | ) |  | $ | 2,846 |
Rate lock commitments |  |  | — |  |  |  | — |  |  |  | 2,390 |  |  |  | — |  |  |  | 2,390 |
Forwards |  |  | — |  |  |  | 927 |  |  |  | 657 |  |  |  | (101 | ) |  |  | 1,483 |
Futures |  |  | — |  |  |  | 80,010 |  |  |  | — |  |  |  | (78,944 | ) |  |  | 1,066 |
Foreign exchange/commodities options |  |  | 27,548 |  |  |  | — |  |  |  | — |  |  |  | (27,418 | ) |  |  | 130 |
Equity options |  |  | 18 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 18 |
Contingent consideration |  |  | — |  |  |  | — |  |  |  | 67,172 |  |  |  | — |  |  |  | 67,172 |
Total |  | $ | 27,566 |  |  | $ | 84,117 |  |  | $ | 70,219 |  |  | $ | (106,797 | ) |  | $ | 75,105 |
Level 3 Financial Assets and Liabilities Changes in Level 3 rate lock commitments, forwards and contingent consideration measured at fair value on a recurring basis for the three months ended March 31, 2018 were as follows (in thousands):
|  | Opening Balance as of January 1, 2018 |  |  | Total realized and unrealized gains (losses) included in Net income (loss) |  |  | Unrealized gains (losses) included in Other comprehensive income (loss) |  |  | Purchases/Issuances |  |  | Sales/Settlements |  |  | Closing Balance at March 31, 2018 |  |  | Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at March 31, 2018 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate lock commitments and forwards, net |  | $ | 3,629 |  |  | $ | 7,036 |  |  | $ | — |  |  | $ | — |  |  | $ | (3,629 | ) |  | $ | 7,036 |  |  | $ | 7,036 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued and other liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration1 |  | $ | 67,172 |  |  | $ | (707 | ) |  | $ | (863 | ) |  | $ | 22 |  |  | $ | (9,522 | ) |  | $ | 59,242 |  |  | $ | (1,570 | )
1 Realized and unrealized gains (losses) are reported in “Other expenses” and “Other income (loss),” as applicable, in the Company’s unaudited condensed consolidated statements of operations. Changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2017 are as follows (in thousands):
|  | Opening Balance as of January 1, 2017 |  |  | Total realized and unrealized gains (losses) included in Net income (loss) |  |  | Unrealized gains (losses) included in Other comprehensive income (loss) |  |  | Purchases/Issuances |  |  | Sales/Settlements |  |  | Closing Balance at March 31, 2017 |  |  | Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at March 31, 2017 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate lock commitments and forwards, net |  | $ | 10,254 |  |  | $ | 2,462 |  |  | $ | — |  |  | $ | — |  |  | $ | (10,254 | ) |  | $ | 2,462 |  |  | $ | 2,462 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable, accrued and other liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration1 |  | $ | 65,838 |  |  | $ | (1,111 | ) |  | $ | (211 | ) |  | $ | 6,190 |  |  | $ | (10,153 | ) |  | $ | 63,197 |  |  | $ | (1,322 | )
1 Realized and unrealized gains (losses) are reported in “Other expenses” and “Other income (loss),” as applicable, in the Company’s unaudited condensed consolidated statements of operations. Quantitative Information About Level 3 Fair Value Measurements on a Recurring Basis The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurement of Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):
|  | Fair Value as of March 31, 2018 |  |  |  |  |  |  |  |  |
|  | Assets |  |  | Liabilities |  |  | Valuation Technique |  | Unobservable Inputs |  | Range |  | Weighted Average
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate lock commitments |  | $ | 8,750 |  |  | $ | 8,980 |  |  | Discounted cash flow model and other observable market data |  | Counterparty credit risk |  | N/A |  | N/A
Forwards |  | $ | 9,687 |  |  | $ | 2,421 |  |  | Discounted cash flow model and other observable market data |  | Counterparty credit risk |  | N/A |  | N/A
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | — |  |  | $ | 59,242 |  |  | Present value of expected payments |  | Discount rate Probability of meeting earnout and contingencies |  | 3.3%-10.4% 75%-100% |  | 8.1% 97%1
1 | The probability of meeting the earnout targets as of March 31, 2018 was based on the acquired businesses’ projected future financial performance, including revenues.
|  | Fair Value as of December 31, 2017 |  |  |  |  |  |  |  |  |
|  | Assets |  |  | Liabilities |  |  | Valuation Technique |  | Unobservable Inputs |  | Range |  | Weighted Average
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rate lock commitments |  | $ | 2,923 |  |  | $ | 2,390 |  |  | Discounted cash flow model and other observable market data |  | Counterparty credit risk |  | N/A |  | N/A
Forwards |  | $ | 3,753 |  |  | $ | 657 |  |  | Discounted cash flow model and other observable market data |  | Counterparty credit risk |  | N/A |  | N/A
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | — |  |  | $ | 67,172 |  |  | Present value of expected payments |  | Discount rate Probability of meeting earnout and contingencies |  | 3.3%-10.4% 75%-100% |  | 8.2% 97%1
1 | The probability of meeting the earnout targets as of December 31, 2017 was based on the acquired businesses’ projected future financial performance, including revenues.
Valuation Processes – Level 3 Measurements Valuations for rate lock commitments, forwards, and contingent consideration are conducted by the Company. Each reporting period, the Company updates unobservable inputs. The Company has a formal process to review the material accuracy of changes in fair value. Sensitivity Analysis – Level 3 Measurements The significant unobservable input used in the fair value of the Company’s rate lock commitments and forwards is the counterparty credit risk. The significant unobservable inputs used in the fair value of the Company’s contingent consideration are the discount rate and forecasted financial information. Significant increases (decreases) in the discount rate would have resulted in a lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would have resulted in a higher (lower) fair value measurement. As of March 31, 2018 and December 31, 2017, the present value of expected payments related to the Company’s contingent consideration was $59.2 million and $67.2 million, respectively. The undiscounted value of the payments, assuming that all contingencies are met, would be $79.9 million and $85.2 million, respectively. Fair Value Measurements on a Non-Recurring Basis Pursuant to the new recognition and measurement guidance for equity investments, effective January 1, 2018, equity investments carried under the measurement alternative are remeasured at fair value on a non-recurring basis to reflect observable transactions which occurred during the period. The Company applied the measurement alternative to equity securities with the fair value of approximately $30.9 million, which were included in “Other Assets” in the Company’s unaudited condensed consolidated statements of financial condition as of March 31, 2018. These investments are classified within Level 2 in the fair value hierarchy, because their estimated fair value is based on valuation methods using the observable transaction price at the transaction date.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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