UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

PIPER JAFFRAY COMPANIES

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		30-0168701 (IRS Employer Identification No.)
800 Nicollet Mall, Suite 800 Minneapolis, Minnesota (Address of principal executive offices)		55402 (Zip Code)

(612) 303-6000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer: þ		Accelerated filer: o		Non-accelerated filer: o		Smaller reporting company: o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No þ

     As of May 1, 2009, the registrant had 19,685,042 shares of Common Stock outstanding.

 

 

Piper Jaffray Companies

Index to Quarterly Report on Form 10-Q

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 2009 and December 31, 2008
Consolidated Statements of Operations for the three months ended March 31, 2009 and March 31, 2008
Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and March 31, 2008
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Signatures
Exhibit Index
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Piper Jaffray Companies

		March 31,				December 31,
		2009				2008
(Amounts in thousands, except share data)		(Unaudited)
Assets
Cash and cash equivalents		$	49,002			$	49,848
Cash and cash equivalents segregated for regulatory purposes			27,006				20,005
Receivables:
Customers			45,582				39,228
Brokers, dealers and clearing organizations			60,894				122,120
Deposits with clearing organizations			37,555				28,471
Securities purchased under agreements to resell			50,026				65,237
Securitized municipal tender option bonds			38,846				84,586
Financial instruments and other inventory positions owned			489,904				380,812
Financial instruments and other inventory positions owned and pledged as collateral			61,476				112,023
Total financial instruments and other inventory positions owned			551,380				492,835
Fixed assets (net of accumulated depreciation and amortization of $61,233 and $59,485, respectively)			18,678				20,034
Goodwill			160,368				160,582
Intangible assets (net of accumulated amortization of $8,844 and $8,230, respectively)			13,909				14,523
Other receivables			36,410				36,951
Other assets			138,107				185,738
Total assets		$	1,227,763			$	1,320,158
Liabilities and Shareholders’ Equity
Short-term bank financing		$	59,000			$	9,000
Payables:
Customers			41,949				34,188
Checks and drafts			4,647				4,397
Brokers, dealers and clearing organizations			95,910				10,049
Securities sold under agreements to repurchase			3,525				106,372
Tender option bond trust certificates			38,715				87,982
Financial instruments and other inventory positions sold, but not yet purchased			120,299				143,213
Accrued compensation			36,109				98,150
Other liabilities and accrued expenses			66,055				78,828
Total liabilities			466,209				572,179
Shareholders’ equity:
Common stock, $0.01 par value:
Shares authorized: 100,000,000 at March 31, 2009 and December 31, 2008;
Shares issued: 19,498,488 at March 31, 2009 and December 31, 2008;
Shares outstanding: 16,096,381 at March 31, 2009 and 15,684,433 at December 31, 2008			195				195
Additional paid-in capital			800,924				808,358
Retained earnings			122,099				124,824
Less common stock held in treasury, at cost: 3,402,107 shares at March 31, 2009 and 3,814,055 shares at December 31, 2008			(160,133	)			(183,935	)
Other comprehensive loss			(1,531	)			(1,463	)
Total shareholders’ equity			761,554				747,979
Total liabilities and shareholders’ equity		$	1,227,763			$	1,320,158

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

		Three Months Ended March 31,
(Amounts in thousands, except per share data)		2009				2008
Revenues:
Investment banking		$	24,350			$	55,265
Institutional brokerage			55,027				29,812
Interest			7,288				15,159
Asset management			3,009				3,973
Other income/(loss)			(3,599	)			(1,584	)
Total revenues			86,075				102,625
Interest expense			2,193				6,878
Net revenues			83,882				95,747
Non-interest expenses:
Compensation and benefits			50,324				59,277
Occupancy and equipment			6,518				8,110
Communications			6,099				6,739
Floor brokerage and clearance			2,882				2,654
Marketing and business development			4,445				6,096
Outside services			7,519				8,642
Restructuring-related expenses			—				2,854
Other operating expenses			2,551				2,464
Total non-interest expenses			80,338				96,836
Income/(loss) before income tax expense			3,544				(1,089	)
Income tax expense			6,269				305
Net loss		$	(2,725	)		$	(1,394	)
Earnings per common share
Basic		$	(0.17	)		$	(0.09	)
Diluted		$	(0.17	) (1)		$	(0.09	) (1)
Weighted average number of common shares outstanding
Basic			15,868				15,829
Diluted			15,868	(1)			15,829	(1)

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

		Three Months Ended March 31,
(Dollars in thousands)		2009				2008
Operating Activities:
Net loss		$	(2,725	)		$	(1,394	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation and amortization of fixed assets			1,763				2,391
Deferred income taxes			13,762				5,498
Stock-based compensation			6,837				6,544
Amortization of intangible assets			614				655
Decrease/(increase) in operating assets:
Cash and cash equivalents segregated for regulatory purposes			(7,001	)			(10,000	)
Receivables:
Customers			(7,018	)			(771	)
Brokers, dealers and clearing organizations			61,225				3,359
Deposits with clearing organizations			(9,084	)			587
Securities purchased under agreements to resell			15,211				26,883
Securitized municipal tender option bonds			45,740				14,406
Net financial instruments and other inventory positions owned			(81,423	)			(182,953	)
Other receivables			514				(1,554	)
Other assets			34,062				184
Increase/(decrease) in operating liabilities:
Payables:
Customers			7,778				(18,108	)
Checks and drafts			250				9,178
Brokers, dealers and clearing organizations			86,550				20,929
Securities sold under agreements to repurchase			(91	)			4,691
Tender option bond trust certificates			(49,267	)			(32,031	)
Accrued compensation			(45,442	)			(93,051	)
Other liabilities and accrued expenses			(12,735	)			(6,300	)
Net cash provided by/(used in) operating activities			59,520				(250,857	)
Investing Activities:
Purchases of fixed assets, net			(431	)			(711	)
Net cash used in investing activities			(431	)			(711	)
Financing Activities:
Increase/(decrease) in securities sold under agreements to repurchase			(102,756	)			22,334
Increase in short-term bank financing			50,000				112,250
Repurchase of common stock			(4,074	)			(6,997	)
Excess/(reduced) tax benefits from stock-based compensation			(2,941	)			454
Proceeds from stock option transactions			—				20
Net cash provided by/(used in) financing activities			(59,771	)			128,061
Currency adjustment:
Effect of exchange rate changes on cash			(164	)			(181	)
Net decrease in cash and cash equivalents			(846	)			(123,688	)
Cash and cash equivalents at beginning of period			49,848				150,348
Cash and cash equivalents at end of period		$	49,002			$	26,660
Supplemental disclosure of cash flow information -
Cash paid/(received) during the period for:
Interest		$	1,962			$	2,285
Income taxes		$	(36,642	)		$	(4,775	)
Non-cash financing activities -
Issuance of common stock for retirement plan obligations: 134,700 shares and 90,140 shares for the three months ended March 31, 2009 and 2008, respectively		$	3,756			$	3,704
Issuance of restricted common stock for annual equity award:
585,198 shares and 1,237,756 shares for the three months ended March 31, 2009 and 2008, respectively		$	16,331			$	50,859

See Notes to Consolidated Financial Statements

Piper Jaffray Companies

Note 1		Background

     Piper Jaffray Companies is the parent company of Piper Jaffray & Co. (“Piper Jaffray”), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and investment banking services in Europe headquartered in London, England; Piper Jaffray Asia Holdings Limited, an entity providing investment banking services in China headquartered in Hong Kong; Fiduciary Asset Management, LLC (“FAMCO”), an entity providing asset management services to clients through separately managed accounts and closed end funds offering an array of investment products; Piper Jaffray Financial Products Inc, Piper Jaffray Financial Products II Inc. and Piper Jaffray Financial Products III Inc., entities that facilitate customer derivative and inventory hedging transactions; and other immaterial subsidiaries. Piper Jaffray Companies and its subsidiaries (collectively, the “Company”) operate as one reporting segment providing investment banking services, institutional sales, trading and research services, and asset management services. As discussed more fully in Note 4, the Company completed the sale of its Private Client Services branch network and certain related assets to UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”), on August 11, 2006, thereby exiting the Private Client Services (“PCS”) business.

Basis of Presentation

     The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest. All material intercompany balances have been eliminated. Certain financial information for prior periods has been reclassified to conform to the current period presentation.

     The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments that in the opinion of management are normal and recurring and that are necessary for a fair statement of the results for the interim periods presented. In accordance with these rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. The consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

     The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. These principles require management to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for a full year.

Note 2		Summary of Significant Accounting Policies

     Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, for a full description of the Company’s significant accounting policies.

Note 3		Recent Accounting Pronouncements

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) expands the definition of transactions and events that qualify as business combinations; requires that acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) was required for combinations after December 15, 2008. The Company will apply the standard to any business combinations within the scope of SFAS 141(R).

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 re-characterizes minority interests in consolidated subsidiaries as non-controlling interests and requires the classification of minority interests as a component of equity. Under SFAS 160, a change in control is measured at fair value, with any gain or loss recognized in earnings. SFAS 160 was effective for fiscal years beginning after December 15, 2008. The provisions of SFAS 160 are to be applied prospectively, except for the presentation and disclosure requirements which are to be applied retrospectively to all periods presented. The adoption of SFAS 160 did not have a material effect on the consolidated financial statements of the Company.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires disclosures regarding the location and amounts of derivative instruments in the                     

Company’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Company’s financial position, results of operations and cash flows. SFAS 161 was effective for interim periods beginning after November 15, 2008, and fiscal years that include those interim periods. The Company adopted SFAS 161 and included the appropriate disclosures as of March 31, 2009, as described in Note 5. The Company’s adoption of SFAS 161 did not impact the results of operation or financial condition.

     In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that unvested share-based payment awards with nonforfeitable rights to dividends or dividend equivalents are considered participating securities and should be included in the calculation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for financial statements issued for periods beginning after December 15, 2008 with early adoption prohibited. The adoption of FSP EITF 03-6-1 did not impact the Company’s calculation of earnings per share in the first quarter of 2009.

     In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”), which was effective upon issuance, including prior periods for which financial statements have not been issued. FSP 157-3 clarifies the application of Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“SFAS 157”) in a market that is not active and provides an example of key considerations to determine the fair value of financial assets when the market for those assets is not active. The adoption of FSP 157-3 did not have a material effect on the Company’s consolidated results of operations and financial condition.

     In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8 “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP 140-4”), which was effective for the first reporting period ending after December 15, 2008. FSP 140-4 requires additional disclosure related to transfers of financial assets and variable interest entities. Since FSP 140-4 impacts the Company’s disclosures and not its accounting treatment for transfers of financial assets and variable interest entities, the Company’s adoption of FSP 140-4 did not impact its consolidated results of operations and financial condition.

     In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 amends SFAS 157, to provide additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability and also provides additional guidance on circumstances that may indicate that a transaction is not orderly. FSP 157-4 supersedes FSP 157-3. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The adoption of FSP 157-4 is not expected to have a material impact on the Company’s consolidated financial statements.

Note 4		Sale of PCS

     On August 11, 2006, the Company and UBS completed the sale of the Company’s PCS branch network under a previously announced asset purchase agreement. The purchase price under the asset purchase agreement was approximately $750 million, which included $500 million for the branch network and approximately $250 million for the net assets of the branch network, consisting principally of customer margin receivables.

     In connection with the sale of the Company’s PCS branch network, the Company initiated a plan in 2006 to significantly restructure the Company’s support infrastructure. All restructuring costs related to the sale of the PCS branch network were included within discontinued operations in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. See Note 14 for additional information regarding the Company’s restructuring activities.

Note 5		Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased

     Financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased were as follows:

		March 31,				December 31,
(Dollars in thousands)		2009				2008
Financial instruments and other inventory positions owned (1):
Corporate securities:
Equity securities		$	3,804			$	4,148
Convertible securities			2,686				7,088
Fixed income securities			46,123				72,571
Municipal securities			265,174				173,169
Asset-backed securities			57,352				52,385
U.S. government agency securities			39,362				59,341
U.S. government securities			92,863				67,631
Derivative contracts			44,016				56,502
		$	551,380			$	492,835
Financial instruments and other inventory positions sold, but not yet purchased:
Corporate securities:
Equity securities		$	4,349			$	6,335
Convertible securities			2,387				—
Fixed income securities			19,563				9,283
Municipal securities			52				23,250
U.S. government agency securities			5				10,298
U.S. government securities			65,344				58,377
Derivative contracts			28,599				35,670
		$	120,299			$	143,213

     At March 31, 2009, and December 31, 2008, financial instruments and other inventory positions owned in the amount of $61.5 million and $112.0 million, respectively, had been pledged as collateral for the Company’s repurchase agreements and secured borrowings.

     Inventory positions sold, but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the consolidated statements of financial condition. The Company economically hedges changes in market value of its financial instruments and other inventory positions owned utilizing inventory positions sold, but not yet purchased, interest rate derivatives, futures and exchange-traded options.

Derivative Contract Financial Instruments

     The Company uses interest rate swaps, interest rate locks, and forward contracts to facilitate customer transactions and as a means to manage risk in certain inventory positions. Interest rate swaps are also used to manage interest rate exposure associated with the Company’s municipal bond securitization transactions. The following describes the Company’s derivatives by the type of transaction or security the instruments are economically hedging.

     Customer matched-book derivatives: The Company enters into interest rate derivative contracts in a principal capacity as a dealer to satisfy the financial needs of its customers. The Company simultaneously enters into an interest rate derivative contract with a third party to hedge the interest rate risk of the initial client interest rate derivative contract. The instruments typically use interest rates based upon either the London Inter-bank Offer Rate (“LIBOR”) index or the Securities Industry and Financial Markets Association (“SIFMA”) index.

     Trading securities derivatives: The Company enters into interest rate derivative contracts to hedge interest rate and market value risks associated with its fixed income securities. The instruments principally use interest rates based upon either the Municipal Market Data (“MMD”) index or the SIFMA index.

     Securitization transaction derivatives: The Company enters into interest rate derivative contracts to manage the interest rate exposure associated with the Company’s securitization transactions. The instruments used are based upon the SIFMA index.

     The following table presents the total absolute notional contract amount associated with the Company’s outstanding derivative instruments:

(Dollars in thousands)
Derivative Instrument		Derivative Category		March 31, 2009				December 31, 2008
Customer matched-book		Interest rate derivative contract		$	6,916,439			$	6,834,402
Trading securities		Interest rate derivative contract			161,500				114,500
Securitization transactions		Interest rate derivative contract			38,740				144,400
				$	7,116,679			$	7,093,302

     The Company’s interest rate derivative contracts do not qualify for hedge accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities;” therefore, unrealized gains and losses are recorded on the consolidated statements of operations. The following table presents the Company’s gains/(losses) on derivative instruments:

(Dollars in thousands)				Three Months Ended
Derivative Category		Revenue Category		March 31, 2009				March 31, 2008
Interest rate derivative contract		Institutional brokerage		$	789			$	(3,805	)

     The gross fair market value of all derivative instruments and their location on the Company’s consolidated statements of financial condition are shown below by asset or liability position (1):

(Dollars in thousands)				Asset Value at				Liability Value at
Derivative Category		Financial Condition Location		March 31, 2009		Financial Condition Location		March 31, 2009
Interest rate derivative contract	Financial intruments and other inventory positions owned			$609,612	Financial intruments and other inventory positions sold, but not yet purchased			$579,064

     The Company’s derivative contracts are recorded at fair value. These derivatives are valued using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. Derivatives are reported on a net-by-counterparty basis when legal right of offset exists, and on a net-by-cross product basis when applicable provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided a legal right of offset exists.

     Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. Credit exposure associated with the Company’s derivatives is driven by uncollateralized market movements in the fair value of the contracts with counterparties and is monitored regularly by its market and credit risk committee. The majority of the Company’s derivative contracts are substantially collateralized by its counterparties, which are major financial institutions. The Company has a limited number of counterparties (notional contract amount of $254.3 million at March 31, 2009) who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing the Company to the credit risk of these counterparties. As of March 31, 2009, the Company had $39.8 million of credit exposure with these counterparties, including $18.3 million of credit exposure with one counterparty.

Note 6		Fair Value of Financial Instruments

     The Company records financial instruments and other inventory positions owned, financial instruments and other inventory positions sold, but not yet purchased and securitized municipal tender option bonds at fair value on the consolidated statements of financial condition with unrealized gains and losses reflected in the consolidated statements of operations.

     The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and other characteristics specific to the instrument. Financial instruments with readily available active quoted prices for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.

     The following table summarizes the valuation of our financial instruments by SFAS 157 pricing observability levels as of March 31, 2009:

														Counterparty
														Collateral
(Dollars in thousands)		Level I (1)				Level II (1)				Level III (1)				Netting (2)				Total
Assets:
Financial instruments and other inventory positions owned:
Non-derivative instruments		$	32,448			$	426,886			$	48,030			$	—			$	507,364
Derivative instruments			—				80,664				—				(36,648	)			44,016
Total financial instruments and other inventory positions owned:			32,448				507,550				48,030				(36,648	)			551,380
Securitized municipal tender option bonds			—				38,846				—				—				38,846
Cash equivalents			23,477				—				—				—				23,477
Investments			1,138				—				85				—				1,223
Total assets		$	57,063			$	546,396			$	48,115			$	(36,648	)		$	614,926
Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Non-derivative instruments		$	12,948			$	78,752			$	—			$	—			$	91,700
Derivative instruments			—				50,116				—				(21,517	)			28,599
Total financial instruments and other inventory positions sold, but not yet purchased:			12,948				128,868				—				(21,517	)			120,299
Investments			—				—				19				—				19
Total liabilities		$	12,948			$	128,868			$	19			$	(21,517	)		$	120,318

     The following table summarizes the valuation of our financial instruments by SFAS 157 pricing observability levels as of December 31, 2008:

														Counterparty
														Collateral
(Dollars in thousands)		Level I (1)				Level II (1)				Level III (1)				Netting (2)				Total
Assets:
Financial instruments and other inventory positions owned:
Non-derivative instruments		$	65,372			$	324,836			$	46,125			$	—			$	436,333
Derivative instruments			—				84,502				—				(28,000	)			56,502
Total financial instruments and other inventory positions owned:			65,372				409,338				46,125				(28,000	)			492,835
Securitized municipal tender option bonds			—				84,586				—				—				84,586
Cash equivalents			31,595				—				—				—				31,595
Investments			1,741				—				433				—				2,174
Total assets		$	98,708			$	493,924			$	46,558			$	(28,000	)		$	611,190
Liabilities:
Financial instruments and other inventory positions sold, but not yet purchased:
Non-derivative instruments		$	20,759			$	86,784			$	—			$	—			$	107,543
Derivative instruments			—				63,670				—				(28,000	)			35,670
Total financial instruments and other inventory positions sold, but not yet purchased:			20,759				150,454				—				(28,000	)			143,213
Investments			—				—				366				—				366
Total liabilities		$	20,759			$	150,454			$	366			$	(28,000	)		$	143,579

     Instruments that trade infrequently and therefore have little or no price transparency are classified within Level III based on the results of our price verification process. The Company’s Level III assets were $48.1 million and $46.6 million, or 7.8 percent and 7.6 percent of financial instruments measured at fair value at March 31, 2009, and December 31, 2008, respectively. At March 31, 2009, these balances primarily consist of auction rate securities where the market has been dislocated and largely ceased to function and asset-backed securities, principally collateralized by aircraft that have experienced low volumes of executed transactions, such that unobservable inputs had to be utilized for the fair value measurements of these instruments. The fair value of our auction rate securities materially approximate par. Asset-backed securities are valued using cash flow models that utilize unobservable inputs that include airplane lease rates, maintenance costs and airplane liquidation proceeds.

     The following tables summarize the changes in fair value carrying values associated with Level III financial instruments during the three months ended March 31, 2009 and 2008, respectively:

		Non-Derivative				Non-Derivative				Investment				Investment
(Dollars in thousands)		Assets				Liabilities				Assets				Liabilities
Balance at December 31, 2008		$	46,125			$	—			$	433			$	(366	)
Purchases/(sales), net			635				—				—				—
Net transfers in/(out)			970				—				—				—
Realized gains/(losses) (3)			241				—				—				—
Unrealized gains/(losses) (3)			59				—				(348	)			347
Balance at March 31, 2009		$	48,030			$	—			$	85			$	(19	)

		Non-Derivative				Non-Derivative				Investment				Investment
(Dollars in thousands)		Assets				Liabilities				Assets				Liabilities
Balance at December 31, 2007		$	230,703			$	—			$	6,015			$	(1,260	)
Purchases/(sales), net			46,906				—				(267	)			267
Net transfers in/(out)			—				—				—				—
Realized gains/(losses) (3)			(1,749	)			—				267				(267	)
Unrealized gains/(losses) (3)			1,780				—				(749	)			(72	)
Balance at March 31, 2008		$	277,640			$	—			$	5,266			$	(1,332	)

Note 7		Securitizations

     Historically, the Company conducted a tender option bond securitization program, which the Company chose to discontinue in October of 2008. Under this program, the Company sold highly rated municipal bonds into securitization vehicles (“Securitized Trusts”) that are funded by the sale of variable rate certificates to institutional customers seeking variable rate tax-free investment products. These variable rate certificates reprice weekly and the Company receives a fee to remarket the variable rate certificates. Securitization transactions meeting certain Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 140”), criteria are treated as sales, with the resulting gain included in institutional brokerage revenue on the consolidated statements of operations. If a securitization does not meet the asset sale criteria of SFAS 140, the transaction is recorded as a borrowing. The Company had two Securitized Trusts outstanding as of March 31, 2009, and seven outstanding as of December 31, 2008, respectively.

     At March 31, 2009, the Company maintained two Securitized Trusts that did not meet the asset sale criteria of SFAS 140, causing the Company to account for these transactions as borrowings. The Company consolidated the assets and liabilities of the trusts onto its consolidated statements of financial condition. Accordingly, the Company recorded an asset for the underlying bonds of $38.8 million (par value $38.7 million) as of March 31, 2009, in securitized municipal tender option bonds and a liability for the certificates sold by the trusts for $38.7 million as of March 31, 2009, in tender option bond trust certificates on the consolidated statement of financial condition. At December 31, 2008, the Company had seven Securitized Trusts consolidated on its consolidated statement of financial condition. Accordingly, the Company recorded an asset for the underlying bonds of $84.6 million (par value $113.6 million) as of December 31, 2008, in securitized municipal tender option bonds and a liability for the certificates sold by the trusts for $88.0 million as of December 31, 2008, in tender option bond trust certificates on the consolidated statement of financial condition.

     The Company has contracted with a major third-party financial institution to act as the liquidity provider for the Company’s tender option bond Securitized Trusts. The Company has agreed to reimburse this party for any losses associated with providing liquidity to the trusts. The maximum exposure to loss at March 31, 2009, was $38.7 million representing the outstanding amount of all trust certificates. This exposure to loss is mitigated, however, by the underlying bonds in the trusts and derivative hedges the Company has in place. The underlying bonds had a market value of approximately $38.8 million at March 31, 2009.

     The Company has entered into interest rate swap agreements to manage interest rate exposure associated with its Securitized Trusts, which have been recorded at fair value. See further discussion of interest rate swap agreements in Note 5 to our unaudited consolidated financial statements.

Note 8		Variable Interest Entities

     In the normal course of business, the Company periodically creates or transacts with entities that may be variable interest entities (“VIEs”). The determination as to whether an entity is a VIE is based on the amount and nature of the Company’s equity investment in the entity. The Company also considers other characteristics such as the ability to influence the decision making about the entity’s activities and how the entity is financed. The Company’s involvement with VIEs is limited to entities used as either securitization vehicles or investment vehicles. See Note 7 for a discussion of the Company’s securitization vehicles.

     The Company has investments in and/or acts as the managing partner or member to approximately 22 partnerships and limited liability companies (“LLCs”). These entities were established for the purpose of investing in equity and debt securities of public and private investments and were initially financed through the capital commitments of the members. At March 31, 2009, the Company’s aggregate net investment in these partnerships and LLCs totaled $8.9 million. The Company’s remaining capital commitment to these partnerships and LLCs was $3.5 million at March 31, 2009.

     The Company has identified one partnership and three LLCs described above as VIEs. The Company consolidates all VIEs for which it is considered to be the primary beneficiary. The determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both.             

It was determined that the Company is not the primary beneficiary of these VIEs, however, the Company owns a significant variable interest in these VIEs. These VIEs had assets approximating $150.0 million at March 31, 2009. The Company’s exposure to loss from these entities is $4.0 million, which is the value of its capital contributions recorded in other assets on the consolidated statement of financial condition at March 31, 2009. The Company had no liabilities related to these entities at March 31, 2009.

     The Company has not provided financial or other support to the VIEs that it was not previously contractually required to provide as of March 31, 2009.

Note 9		Receivables from and Payables to Brokers, Dealers and Clearing Organizations

     Amounts receivable from brokers, dealers and clearing organizations at March 31, 2009, and December 31, 2008, included:

		March 31,				December 31,
(Dollars in thousands)		2009				2008
Receivable arising from unsettled securities transactions, net		$	—			$	79,370
Deposits paid for securities borrowed			26,934				18,475
Receivable from clearing organizations			24,511				17,661
Securities failed to deliver			5,746				2,282
Other			3,703				4,332
		$	60,894			$	122,120

     Amounts payable to brokers, dealers and clearing organizations at March 31, 2009, and December 31, 2008, included:

		March 31,				December 31,
(Dollars in thousands)		2009				2008
Payable arising from unsettled securities transactions, net		$	89,744			$	—
Payable to clearing organizations			3,639				8,482
Securities failed to receive			2,228				1,565
Other			299				2
		$	95,910			$	10,049

     Deposits paid for securities borrowed approximate the market value of the securities. Securities failed to deliver and receive represent the contract value of securities that have not been delivered or received by the Company on settlement date.

Note 10		Other Assets

     Other assets included investments in public companies, investments in private equity partnerships that are valued using the equity method of accounting, investments in private companies and bridge-loans valued at cost, net deferred tax assets, income tax receivables and prepaid expenses.

     Other assets at March 31, 2009, and December 31, 2008, included:

		March 31,				December 31,
(Dollars in thousands)		2009				2008
Investments at fair value		$	1,223			$	2,174
Investments at cost			35,300				33,988
Investments valued using equity method			17,920				19,817
Deferred income tax assets			73,658				87,420
Income tax receivables			3,240				35,268
Prepaid expenses			5,400				5,779
Other			1,366				1,292
Total other assets		$	138,107			$	185,738

Note 11		Goodwill and Intangible Assets

     The following table presents the changes in the carrying value of goodwill and intangible assets for the three months ended March 31, 2009:

(Dollars in thousands)
Goodwill
Balance at December 31, 2008		$	160,582
Goodwill acquired			—
Impairment losses			—
FAMCO goodwill adjustment			(214	)
Balance at March 31, 2009		$	160,368

(Dollars in thousands)
Intangible assets
Balance at December 31, 2008			14,523
Intangible assets acquired			—
Amortization of intangible assets			(614	)
Impairment losses			—
Balance at March 31, 2009		$	13,909

Note 12		Financing

     The Company has committed short-term financing available on a secured basis and uncommitted short-term financing available on both a secured and unsecured basis. The availability of the Company’s uncommitted lines are subject to approval by individual banks each time an advance is requested and may be denied. In addition, the Company has established arrangements to obtain financing from another broker dealer at the end of each business day related specifically to its convertible securities inventory. Repurchase agreements are also used as a source of funding.

     During 2008, the Company entered into a $250 million committed revolving credit facility with U.S. Bank, N.A. in replacement of an existing $100 million uncommitted revolving credit facility. The Company uses this credit facility in the ordinary course of business to fund a portion of its daily operations, and the amount borrowed under the facility varies daily based on the Company’s funding needs. Advances under this facility are secured by certain marketable securities. However, of the $250 million in financing available under this facility, $125 million may only be drawn with specific municipal securities as collateral. The facility includes a covenant that requires the Company to maintain a minimum net capital of $180 million, and the unpaid principal amount of all advances under this facility will be due on September 25, 2009. The Company will also pay a nonrefundable commitment fee on the unused portion of the facility on a quarterly basis. At March 31, 2009, the Company had advances against this line of credit of $59.0 million.

     The Company’s short-term financing bears interest at rates based on the federal funds rate. For the three months ended March 31, 2009 and 2008, the weighted average interest rate on borrowings was 1.29 percent and 3.42 percent, respectively. At March 31, 2009 and December 31, 2008, no formal compensating balance agreements existed, and the Company was in compliance with all debt covenants related to its financing facilities.

Note 13		Legal Contingencies

     The Company has been named as a defendant in various legal proceedings arising primarily from securities brokerage and investment banking activities, including certain class actions that primarily allege violations of securities laws and seek unspecified damages, which could be substantial. Also, the Company is involved from time to time in investigations and proceedings by governmental agencies and self-regulatory organizations.

     The Company has established reserves for potential losses that are probable and reasonably estimable that may result from pending and potential complaints, legal actions, investigations and proceedings. The Company’s reserves totaled $16.9 million and $17.0 million at March 31, 2009, and December 31, 2008, respectively, which is included within other liabilities and accrued expenses on the consolidated statements of financial condition. A significant portion of the Company’s reserves at March 31, 2009 and December 31, 2008, will be funded by an insurance receivable, which is recorded within other receivables on the consolidated statement of financial condition.

     As part of the asset purchase agreement between UBS and the Company for the sale of the PCS branch network, the Company retained liabilities arising from regulatory matters and certain litigation relating to the PCS business prior to the sale. The amount of exposure for PCS litigation matters deemed to be probable and reasonably estimable are included in the Company’s established reserves. Adjustments to litigation reserves for matters pertaining to the PCS business would be included within discontinued operations on the consolidated statements of operations.

     Given uncertainties regarding the timing, scope, volume and outcome of pending and potential litigation, arbitration and regulatory proceedings and other factors, the amounts of reserves are difficult to determine and of necessity subject to future revision. Subject to the foregoing, management of the Company believes, based on its current knowledge, after consultation with outside legal counsel and after taking into account its established reserves, that pending legal actions, investigations and proceedings will be resolved with no material adverse effect on the consolidated financial condition of the Company. However, if during any period a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves, the results of operations in that period could be materially adversely affected.

Note 14		Restructuring

     In 2006, the Company implemented a specific restructuring plan to reorganize the Company’s support infrastructure as a result of the PCS branch network sale to UBS. In 2008, the Company implemented certain expense reduction measures as a means to better align its cost infrastructure with its revenues. The following table presents a summary of activity with respect to the restructuring-related liabilities included in other liabilities and accrued expenses on the consolidated statements of financial condition:

		2008				PCS
(Dollars in thousands)		Restructuring				Restructuring
Balance at December 31, 2008		$	8,529			$	9,928
Recovery of provision charged to operations			(274	)			—
Cash outlays			(3,539	)			(886	)
Non-cash write-downs			(82	)			—
Balance at March 31, 2009		$	4,634			$	9,042

Note 15		Shareholders’ Equity

Share Repurchase Program

     In the second quarter of 2008, the Company’s board of directors authorized the repurchase of up to $100 million in common shares through June 30, 2010. During the three months ended March 31, 2009, the Company did not repurchase any shares of the Company’s common stock under this authorization. The Company has $85.0 million remaining under this authorization.

Issuance of Shares

     During the three months ended March 31, 2009, the Company issued 134,700 common shares out of treasury in fulfillment of $3.8 million in obligations under the Piper Jaffray Companies Retirement Plan and issued 277,248 common shares out of treasury as a result of vesting and exercise transactions under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan.

Note 16		Earnings Per Share

     Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive restricted stock and stock options. The computation of earnings per share is as follows:

		Three Months Ended March 31,
(Amounts in thousands, except per share data)		2009				2008
Net loss		$	(2,725	)		$	(1,394	)
Shares for basic and diluted calculations:
Average shares used in basic computation			15,868				15,829
Stock options			2				57
Restricted stock			2,428				2,111
Average shares used in diluted computation			18,298				17,997
Earnings per share:
Basic		$	(0.17	)		$	(0.09	)
Diluted		$	(0.17	) (1)		$	(0.09	) (1)

     The anti-dilutive effects from stock options or restricted stock was immaterial for the periods ended March 31, 2009 and 2008.

Note 17		Stock-Based Compensation

     The Company maintains one stock-based compensation plan, the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan. The plan permits the grant of equity awards, including restricted stock and non-qualified stock options, to the Company’s employees and directors for up to 5.5 million shares of common stock. The Company periodically grants shares of restricted stock and options to purchase Piper Jaffray Companies common stock to employees and grants shares of Piper Jaffray Companies common stock to its non-employee directors. The Company believes that such awards help align the interests of employees and directors with those of shareholders and serve as an employee retention tool. The awards granted to employees have the following vesting periods: approximately 80 percent of the awards have three-year cliff vesting periods, approximately 10 percent of the awards vest ratably from 2010 through 2013 on the annual grant date anniversary, and approximately 10 percent of the awards cliff vest upon meeting a specific performance-based metric prior to May 2013. The director awards are fully vested upon grant. The maximum term of the stock options granted to employees and directors is ten years. The plan provides for accelerated vesting of option and restricted stock awards if there is a change in control of the Company (as defined in the plan), in the event of a participant’s death, and at the discretion of the compensation committee of the Company’s board of directors.

     Prior to January 1, 2006, the Company accounted for stock-based compensation under the fair value method of accounting as prescribed by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. As such, the Company recorded stock-based compensation expense in the consolidated statements of operations at fair value, net of estimated forfeitures.

     Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards 123(R), “Share Based Payment” (“SFAS 123(R)”), using the modified prospective transition method. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations at fair value over the service period of the award, net of estimated forfeitures.

     Employee and director stock options granted prior to January 1, 2006, were expensed by the Company on a straight-line basis over the option vesting period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. Employee and director stock options granted after January 1, 2006, are expensed by the Company on a straight-line basis over the required service period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. SFAS 123(R) required the Company to change the expensing period from the vesting period to the required service period, which shortened the period over which options are expensed for employees who are retiree-eligible on the date of grant or become retiree-eligible during the vesting period. The number of employees that fell within this category at January 1, 2006 was not material. In accordance with SEC guidelines, the Company did not alter the expense recorded in connection with prior option grants for the change in the expensing period.

     Restricted stock grants are valued at the market price of the Company’s common stock on the date of grant. Restricted stock granted prior to January 1, 2006, was amortized on a straight-line basis over the vesting period. Restricted stock grants after January 1, 2006, are amortized over the service period. The majority of the Company’s restricted stock grants provide for continued vesting after termination, so long as the employee does not violate certain post-termination restrictions. These post-termination restrictions do not meet the criteria for an in-substance service condition as defined by SFAS 123(R). Accordingly, such restricted stock grants are expensed in the period in which those awards are deemed to be earned, which is generally the calendar year preceding the February grant date each year.

     Performance-based restricted stock awards granted in 2008 were valued at the market price of the Company’s common stock on the date of grant. The restricted shares are amortized on a straight-line basis over the period the Company expects the performance target to be met. The performance condition must be met for the awards to vest and total compensation cost will be recognized only if the performance condition is satisfied. The probability that the performance conditions will be achieved and that the awards will vest is reevaluated each reporting period with changes in actual or estimated outcomes accounted for using a cumulative effect adjustment.

     The Company recorded compensation expense, net of estimated forfeitures, of $6.4 million and $6.5 million for the three months ended March 31, 2009 and 2008, respectively, related to employee restricted stock and stock option grants. The tax benefit related to the total compensation cost for stock-based compensation arrangements totaled $2.5 million for the three months ended March 31, 2009 and 2008, respectively.

     Equity awards cancelled as a result of recipients violating the post-termination restrictions prior to award vesting result in the Company recording other income on the consolidated statement of operations at the lower of the fair value of the award at grant date or the fair value of the award at the date of cancellation. The amount the Company recorded to other income from cancellations for the three months ended March 31, 2009 and 2008, was not significant.

     The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model, which is based on assumptions such as the risk-free interest rate, the dividend yield, the expected volatility and the expected life of the option. The risk-free interest rate assumption is derived from the U.S. treasury bill rate with a maturity equal to the expected life of the option. The dividend yield assumption is derived from the assumed dividend payout over the expected life of the option. The expected volatility assumption for 2008 grants was derived from a combination of Company historical data and industry comparisons. The Company has only been a publicly traded company since the beginning of 2004 and does not have sufficient historical data to determine an appropriate expected volatility solely from the Company’s own historical data. The expected life assumption is based on an average of the following two factors: 1) industry comparisons; and 2) the guidance provided by the SEC in Staff Accounting Bulletin No. 110, (“SAB 110”). SAB 110 allows the use of an “acceptable” methodology under which the Company can take the midpoint of the vesting date and the full contractual term. The following table provides a summary of the valuation assumptions used by the Company to determine the estimated value of stock option grants in Piper Jaffray Companies common stock for the three months ended March 31, 2008:

		2008
Weighted average assumptions in option valuation:
Risk-free interest rates			3.03	%
Dividend yield			0.00	%
Stock volatility factor			33.61	%
Expected life of options (in years)			6.00
Weighted average fair value of options granted		$	15.73

     The Company did not grant stock options during the three months ended March 31, 2009.

     The following table summarizes the changes in the Company’s outstanding stock options for the three months ended March 31, 2009:

										Weighted Average
						Weighted				Remaining				Aggregate
		Options				Average				Contractual				Intrinsic
		Outstanding				Exercise Price				Term (Years)				Value
December 31, 2008			571,067			$	44.25				6.7			$	322,749
Granted			—				—
Exercised			—				—
Canceled			—				—
March 31, 2009			571,067			$	44.25				6.4			$	—
Options exercisable at March 31, 2009			406,539			$	42.99				5.6			$	—

     As of March 31, 2009, there was no unrecognized compensation cost related to stock options expected to be recognized over future years.

     There were no options exercised for the three months ended March 31, 2009. Cash received from option exercises for the three months ended March 31, 2008 was not significant. The tax benefit realized for the tax deduction from option exercises was immaterial for the three months ended March 31, 2008.

     The following table summarizes the changes in the Company’s non-vested restricted stock for the three months ended March 31, 2009:

						Weighted
		Non-Vested				Average
		Restricted				Grant Date
		Stock				Fair Value
December 31, 2008			3,177,945			$	46.87
Granted			854,212				27.89
Vested			(444,054	)			47.79
Canceled			(18,525	)			46.03
March 31, 2009			3,569,578			$	42.27

     As of March 31, 2009, there was $35.5 million of total unrecognized compensation cost related to restricted stock expected to be recognized over a weighted average period of 3.20 years.

Note 18		Geographic Areas

     The following table presents net revenues and long-lived assets by geographic region:

		Three Months Ended
		March 31,
(Dollars in thousands)		2009				2008
Net revenues:
United States		$	80,673			$	82,798
Europe			2,349				5,800
Asia			860				7,149
Consolidated		$	83,882			$	95,747

		March 31,				December 31,
(Dollars in thousands)		2009				2008
Long-lived assets:
United States		$	253,574			$	269,862
Europe			1,162				1,290
Asia			11,877				11,408
Consolidated		$	266,613			$	282,560

Note 19		Net Capital Requirements and Other Regulatory Matters

     Piper Jaffray is registered as a securities broker dealer and an investment advisor with the SEC and is a member of various self regulatory organizations (“SROs”) and securities exchanges. In July of 2007, the National Association of Securities Dealers, Inc. (“NASD”) and the member regulation, enforcement and arbitration functions of the New York Stock Exchange (“NYSE”) consolidated to form the Financial Industry Regulatory Authority (“FINRA”), which now serves as Piper Jaffray’s primary SRO. Piper Jaffray is subject to the uniform net capital rule of the SEC and the net capital rule of FINRA. Piper Jaffray has elected to use the alternative method permitted by the SEC rule, which requires that it maintain minimum net capital of the greater of $1.0 million or 2 percent of aggregate debit balances arising from customer transactions, as such term is defined in the SEC rule. Under the FINRA rule, FINRA may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated debt, dividend payments and other equity withdrawals by Piper Jaffray are subject to certain notification and other provisions of the SEC and FINRA rules. In addition, Piper Jaffray is subject to certain notification requirements related to withdrawals of excess net capital.

     At March 31, 2009, net capital calculated under the SEC rule was $273.0 million, and exceeded the minimum net capital required under the SEC rule by $272.0 million.

     Piper Jaffray Ltd., which is a registered United Kingdom broker dealer, is subject to the capital requirements of the U.K. Financial Services Authority (“FSA”). As of March 31, 2009, Piper Jaffray Ltd. was in compliance with the capital requirements of the FSA.

     Piper Jaffray Asia Holdings Limited operates three entities licensed by the Hong Kong Securities and Futures Commission, which are subject to the liquid capital requirements of the Securities and Futures (Financial Resources) Rules promulgated under the Securities and Futures Ordinance. As of March 31, 2009, Piper Jaffray Asia regulated entities were in compliance with the liquid capital requirements of the Hong Kong Securities and Futures Ordinance.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following information should be read in conjunction with the accompanying consolidated financial statements and related notes and exhibits included elsewhere in this report. Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements include, among other things, statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, and also may include our belief regarding the effect of various legal proceedings, as set forth under “Legal Proceedings” in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2008 and in our subsequent reports filed with the SEC. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors discussed below under “External Factors Impacting Our Business” as well as the factors identified under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, as updated in our subsequent reports filed with the SEC. These reports are available at our web site at www.piperjaffray.com and at the SEC web site at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Executive Overview

     Our business principally consists of providing investment banking, institutional brokerage, asset management and related financial services to middle-market companies, private equity groups, public entities, non-profit entities and institutional investors in the United States, Europe and Asia. We generate revenues primarily through the receipt of advisory and financing fees earned on investment banking activities, commissions and sales credits earned on equity and fixed income institutional sales and trading activities, net interest earned on securities inventories, profits and losses from trading activities related to these securities inventories and asset management fees.

     The securities business is a human capital business. Accordingly, compensation and benefits comprise the largest component of our expenses, and our performance is dependent upon our ability to attract, develop and retain highly skilled employees who are motivated and committed to providing the highest quality of service and guidance to our clients.

     The extremely challenging operating environment that impacted our business in 2008 continued into the first quarter of 2009. Despite this difficult environment, we have kept our focus on two key priorities for our firm: 1) appropriately adjusting our cost structure to enable us to operate through the difficult period, and 2) positioning our firm for when the markets eventually turn positive. In terms of the first priority, we benefited from the cost reduction initiatives implemented in 2008 and exercised strict cost discipline in the first quarter of 2009. We will continue to work to identify additional cost savings opportunities. In terms of the second priority, we believe our firm has an opportunity to capitalize on the turmoil in the competitive landscape and to increase market share by extending our franchise and enhancing our talent base with experienced individuals or teams during these challenging times.

RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2009

     For the three months ended March 31, 2009, we recorded pre-tax income of $3.5 million, but an after-tax loss of $2.7 million, or $0.17 per diluted share. We recorded $6.3 million of income tax expense in the first quarter of 2009, which was high compared to pre-tax income because of the distribution of results between the U.S. and non-U.S. entities and approximately $3.0 million of one-time items that increased tax expense. Net revenues for the three months ended March 31, 2009 were $83.9 million, down 12.4 percent from $95.7 million reported in the year-ago period. Higher institutional brokerage revenues were not able to offset the decline in investment banking revenue resulting from weak market conditions.

EXTERNAL FACTORS IMPACTING OUR BUSINESS

     Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and mostly unpredictable. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions, the volatility of the equity and fixed income markets, changes in interest rates (especially rapid and extreme changes), the level and shape of various yield curves, the volume and value of trading in securities, and the demand for asset management services as reflected by the amount of assets under management.

     Factors that differentiate our business within the financial services industry also may affect our financial results. For example, our business focuses on a middle-market clientele in specific industry sectors. If the business environment for our focus sectors continues to suffer, impacts one or more sectors disproportionately as compared to the economy as a whole, or does not recover on pace with other sectors of the economy, our business and results of operations will be negatively impacted. In addition, our business could be affected differently than overall market trends. Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to period, and results for any individual period should not be considered indicative of future results.

OUTLOOK FOR THE REMAINDER OF 2009

     Global economic and financial market conditions were extraordinarily difficult in 2008 and continued to be challenging through the first quarter of 2009. We anticipate that a challenging environment will persist for the remainder of 2009. Our financial performance depends heavily on investment banking activity, and with the global equity capital markets essentially on hold and advisory activity muted, we anticipate that our results will be negatively impacted. Only one initial public offering was completed industry-wide in the United States during the first quarter of 2009. Additionally, middle market U.S. merger and acquisition activity (transactions of less than $500 million) was well below the average levels of the last two years in both the number and value of completed deals. We anticipate U.S. equity and fixed income trading will continue to perform reasonably well, although we do believe the very favorable fixed income sales and trading results we experienced in the first quarter of 2009 will moderate.

     For the three months ended March 31, 2009, non-compensation expenses were $30.0 million, down 20 percent compared to the first quarter of 2008. This decline was a result of actions taken in 2008, continued expense discipline in the first quarter of 2009 and the timing of certain expenses. All expense categories reflected a significant decline or were at similar levels as the year-ago period. We continue to work to identify additional cost savings, however, we anticipate going forward in 2009 that our non-compensation expense run-rate will be higher than it was in the first quarter and will be in the range of approximately $35 million per quarter.

Results of Operations

     The following table provides a summary of the results of our operations and the results of our operations as a percentage of net revenues for the periods indicated.

														As a Percentage of Net
		For the Three Months Ended												Revenues
		March 31,												For the Three Months Ended
										2009				March 31,
(Dollars in thousands)		2009				2008				v2008				2009				2008
Revenues:
Investment banking		$	24,350			$	55,265				(55.9	)%			29.0	%			57.7	%
Institutional brokerage			55,027				29,812				84.6				65.6				31.2
Interest			7,288				15,159				(51.9	)			8.7				15.8
Asset management			3,009				3,973				(24.3	)			3.6				4.2
Other income/(loss)			(3,599	)			(1,584	)			127.2				(4.3	)			(1.7	)
Total revenues			86,075				102,625				(16.1	)			102.6				107.2
Interest expense			2,193				6,878				(68.1	)			2.6				7.2
Net revenues			83,882				95,747				(12.4	)			100.0				100.0
Non-interest expenses:
Compensation and benefits			50,324				59,277				(15.1	)			60.0				61.9
Occupancy and equipment			6,518				8,110				(19.6	)			7.8				8.5
Communications			6,099				6,739				(9.5	)			7.3				7.0
Floor brokerage and clearance			2,882				2,654				8.6				3.4				2.8
Marketing and business development			4,445				6,096				(27.1	)			5.3				6.4
Outside services			7,519				8,642				(13.0	)			9.0				9.0
Restructuring-related expenses			—				2,854				N/M				—				3.0
Other operating expenses			2,551				2,464				3.5				3.0				2.5
Total non-interest expenses			80,338				96,836				(17.0	)			95.8				101.1
Income/(loss) before income tax expense/(benefit)			3,544				(1,089	)			N/M				4.2				(1.1	)
Income tax expense			6,269				305				N/M				7.4				0.4
Net loss		$	(2,725	)		$	(1,394	)			95.5	%			(3.2	)%			(1.5	)%