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Announcement:

Moody's reviews Cantor Fitzgerald (senior at Baa3) for Downgrade

30 Jul 2012

New York, July 30, 2012 -- Moody's Investors Service placed the ratings of Cantor Fitzgerald, L.P. (senior at Baa3) and its affiliate BGC Partners Inc. (senior at Ba1) on review for possible downgrade.

RATINGS RATIONALE

The review will focus on future profitability at Cantor Fitzgerald and BGC Partners, as well as the risks posed by management's diversification strategy in the current operating environment. Economic uncertainty has reduced origination and trading volumes in many primary and secondary capital markets which has depressed revenues and profitability at many capital markets firms. Therefore executing Cantor's diversification strategy has become more difficult, as many intermediaries compete for a reduced revenue pool. Furthermore, many global financial institutions (many of whom are Cantor and BGC Partners customers) remain under pressure -- particularly within Europe - an important region for Cantor.

Over the past several years, Cantor Fitzgerald's strategy has been to expand its investment banking, sales and trading businesses to supplement its traditional inter-dealer brokerage franchise conducted through BGC Partners. Moody's believes management has been pursuing the opportunity presented by the reduction in capacity amongst capital markets intermediaries following the 2008 financial crisis, and also to protect against declining operating margins in the inter-dealer brokerage business.

Although management's strategy has added revenues in the past five years, it will also continue to test Cantor's risk and expense control disciplines. While much of the emphasis has been on growing fee-based businesses (such as the acquisition of real-estate broker Newmark in 2011) and on sales and distribution of liquid products, Cantor has also selectively expanded into less-liquid asset classes. For example in 2010, Cantor set up a joint venture to originate, warehouse and securitize commercial mortgage-backed securities.

For Cantor Fitzgerald as a whole, annual profitability has declined since 2009. "The difficult operating environment and the cost of investment in new businesses recently has not produced operating margins consistent with an investment grade rating at Cantor Fitzgerald and we do not expect the firm to achieve a low-teens pretax margin in 2012." said Peter Nerby, a Moody's Senior Vice-President.

An additional consideration will be the liquidity and granularity of Cantor Fitzgerald's substantial matched repo book, which contributes to its high balance sheet leverage. To date, Cantor has successfully controlled the risks of the matched book by financing high-quality collateral with conservative haircuts and maintaining sources of alternate liquidity for its available collateral.

To some extent, these business strategy, leverage and profitability concerns are mitigated by Cantor's generally liquid balance sheet and historically disciplined approach to managing risks, which is supported by the incentives inherent to the firm's partnership structure. For example, when making markets, Cantor emphasizes distribution and limits accumulation of aged inventory and BGC Partners' commission --driven business model results in limited balance sheet risk.

Cantor Fitzgerald L.P. is a private limited partnership and does not make its financial results public. Its publically traded affiliate BGC Partners Inc, suffered from negative operating leverage in 2Q12 (revenues rose 23% but expenses rose 30% compared to the year earlier period) and reported net income of $2 million ($0.01 per share) for the quarter ended June 30, 2012.

The principal methodology used in this rating was Global Securities Industry Methodology published in December 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Peter E. Nerby
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's reviews Cantor Fitzgerald (senior at Baa3) for Downgrade
No Related Data.
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