Company: COHN
Filing Date: 2025-03-12
Form Type: 10-K
Source: 0001437749-25-007158
Chunk: 1968

Company: Cohen & Co Inc.
Filing Date: 2025-03-12
Form: 10-K
Item: Item 3
Chunk 1968
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ators; (iv) building out CCM, and (v) monitoring our fixed costs. Our cost management initiatives are ongoing. However, there can be no certainty that these efforts will be sufficient. If insufficient, we will likely see a decline in profitability.

U.S.  Housing Market

In recent years, our mortgage group has grown in significance to our Capital Markets segment and our company overall.  The mortgage group primarily earns revenue by providing hedging execution, securities financing, and trade execution services to mortgage originators and other investors in mortgage-backed securities.  Therefore, this group’s revenue is highly dependent on the volume of mortgage originations in the U.S.  Origination activity is highly sensitive to interest rates, the U.S. job market, housing starts, sale activity of existing housing stock, as well as the general health of the U.S. economy.  In addition, any new regulation that impacts U.S. government agency mortgage-backed security issuance activity, residential mortgage underwriting standards, or otherwise impacts mortgage originators will impact our business.  We have no control over these external factors and there is no effective way for us to hedge against these risks.  Our mortgage group’s volumes and profitability will be highly impacted by these external factors. 

   Rising Interest Rates and Inflation

   During 2022 and 2023, the U.S. Federal Reserve began a process of raising the federal funds rate and quantitative tightening to address rising inflation.  Recently, the U.S. Federal Reserve reduced interest rates for the first time in several years.  It is unclear as to whether or how quickly interest rates will continue to decline, if at all.  For most of the periods presented herein, rates were rising or elevated versus historical lows, which negatively impacted our business in the following ways:

     1.
     Rising rates reduced the fair value of the fixed income securities we hold on our balance sheet.

     2.
     Rising rates created instability in the equity markets, which has reduced equity financing and business combination volumes and negatively impacted CCM.

     3.
     Rising rates reduced the volumes of new issue fixed income instruments, which has negatively impacted our CREO JV.

     4.
     Rising rates significantly reduced mortgage activity. Our mortgage group's profitability is mainly impacted by the volume of mortgage activity in the U.S. (both mortgages for new home purchases as well as refinancing). Furthermore, our mortgage group engages in repo lending to mortgage originators. Reduced mortgage volumes impose financial pressures on