FBR Capital Markets Posts Loss

Update from staff writer Alejandro Lazo

Arlington-based FBR Capital Markets booked a $28.6 million loss in the third quarter, as its investment banking business plummeted in the midst of the financial crisis.

It is the biggest loss yet for the company, which spun-off from its parent, the Friedman, Billings, Ramsey Group of Arlington, last summer.

"The environment continues to be as challenging as any we have seen," Richard J. Hendrix, president and chief operating officer of FBR Capital Markets told investors in a conference call this morning.

The company's $28.6 million, or $0.44 per share, loss for the quarter-ended Sept. 30 compared to a relatively flat $267,000 third quarter profit in 2007. The company has now posted losses for three out of the five quarters that it has existed as a publicly traded company.

FBR Capital Markets initiated lay-offs and other measures to reduce costs in August. Those cuts allowed the firm to operate at break-even levels in September, executives said. FBR booked severance expenses of $3.7 million related to its reductions and $11.0 million worth of write-downs on its investment portfolio in the third quarter.

Executives told analysts that the company's investment portfolio was not exposed to either Freddie Mac or Fannie Mae, nor the failed investment bank Lehman Brothers. The company did have one floating rate mortgage security that it had sold to Lehman Brothers on a repurchase agreement, but was able to buy that investment back before the Lehman subsidiary that held it filed for bankruptcy, executives said. The company also bought back 6.7 million of its shares at an average price of $5.02.

In the third quarter, FBR Capital Markets' investment banking revenues were $12.8 million compared to $66.2 million in the third quarter of 2007. Six million of its third quarter investment banking revenues this year came from its mergers and acquisitions advisory group, the company said.

The bank's institutional brokerage business continued to grow, with $36.4 million in revenues during the third quarter compared to $27.2 million in the third quarter of 2007.

Its asset management business took in fees of $3.7 million for the third quarter of 2008 compared to $6.2 million in the third quarter of 2007. The company had a total of $1.7 billion worth of assets under management at the end of the third quarter compared to $2.7 billion in the third quarter of 2007.

"Going forward we will be operating in a market that is not only unprecedented in the extent and severity of its dislocation, but where the rules of the road and a large part of the competitive landscape has changed, and are continuing to change," Eric F. Billings, chairman and chief executive, said in a statement.

By Terri Rupar  |  October 22, 2008; 9:25 AM ET  | Category:  Earnings , Economy Watch
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