2Q08 Preview: Middle-Market/Boutique Investment Banks
• 2Q08 Better Than 1Q08, But Still Very Difficult. Our Middle-Market/Boutique Investment Banks sub-group includes
Jefferies, Piper Jaffray, Thomas Weisel, Cowen, Keefe, JMP, Rodman, and Merriman. We believe the group should
post improved results overall, following a dismal 1Q08, which was impacted by a dearth of equity deal, fixed income
trading losses, and still high comp expense, as firms maintain their franchises for the eventual recovery in activity.
• Est. Revisions Mixed. We are reducing our expectations for Jefferies, Piper, and KBW, as improvement in their fixed
income segments is less than we previously expected. We are also lowering our forecast for Merriman (inv. banking),
but otherwise are not changing estimates for equity-only names like JMP, Thomas Weisel, Cowen, and Rodman.
• Composite Revenue Up 23% Sequentially. We expect composite revenue to rebound 23% sequentially, mostly
reflecting a reduction in loss levels in debt trading and principal investments. We expect banking to be sequentially
flattish (equity deals up, but advisory down), as well as cash equities (lower volume, but lower loss-ratios).
• Composite Expenses Down 3% Sequentially. We expect composite expenses to decline 3% sequentially, primarily
reflecting headcount reductions. We forecast compensation (ex-IPO awards) to decline 4%, for a comp-ratio of
73.1%. We expect a 3% sequential decrease in non-comp, yielding a non-comp ratio of 34.7%.
• Composite Earnings Rebound From 1Q08, But Still Loss-Making. We are forecasting a -8% pretax operating
margin for the composite. Thus, earnings should rebound from the tough 1Q08. However, on a year-over-year basis,
we expect composite earnings to be down significantly.
• Soft Conditions Could Linger. Forward-looking metrics such as M&A announcements and equity filings softened
this quarter, suggesting modest backlog. We believe potential issuers continue to wait for U.S. equity markets to
recover, which is likely to take some time, while the merger route is a path less frequently chosen.
• Cross-Cycle Still Unchanged. Valuations are cheap, in our view, with the average MM/B stock trading at a P/TBV of
1.0x (vs. historical avg P/TBV of approx. 2.0x), as investors are apparently unwilling to see past the cycle. We believe
the majority—if not all—of these companies will fare quite well when the cycle turns, and we expect the stocks to pop
meaningfully. Therefore, investors with lots of patience might want to buy a basket of names at attractive levels.

TABLE OF CONTENTS
2Q08 Preview: Middle-Mkt/Boutique Firms ................................................ 4
Composite Analysis ..................................................................................................4
Industry-Wide Analysis .............................................................................................6
Middle-Market Company Previews............................................................ 12
Jefferies (JEF, $16.14, In Line)...............................................................................13
Piper Jaffray Co. (PJC, $28.35, In Line) .................................................................16
Thomas Weisel (TWPG, $5.02, Outperform)..........................................................19
Cowen Group (COWN, $7.69, In Line) ...................................................................22
KBW, Inc. (KBW, $20.43, In Line) ..........................................................................25
MCF Corp. (MERR, $1.23, Outperform) .................................................................28
JMP Group (JMP, $6.37, Outperform)....................................................................31
Rodman & Renshaw (RODM, $1.77, Outperform) .................................................34

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