- The Washington Times - Monday, June 26, 2006

The financial firm Friedman Billings Ramsey Group last week said it would sell off a stake in its investment banking, institutional brokerage and asset management business valued at about $400 million.

The Arlington-based company said in a Securities and Exchange Commission filing that it plans to merge the business lines into a new subsidiary it is forming called FBR Capital Markets Corp.

Private equity firm Crestview Partners has agreed to purchase an 8 percent share of the subsidiary for $100 million, the companies said in the SEC filing. Friedman Billings Ramsey plans to sell another 25 percent stake in private transactions for $300 million.

Based on the sales price for the 8 percent stake to Crestview, the subsidiary would have a value of about $1.2 billion. Friedman Billings Ramsey plans to retain a majority 67 percent interest in the unit.

Shares of the company, FBR on the New York Stock Exchange, rose nearly 11 percent Friday after the sale to Crestview was announced. The stock closed yesterday at $11.52 per share, up 50 cents, or nearly 5 percent from Friday’s close.

The stock has traded in a range of $8.37 to $15.35 per share in the past year.

Although the Crestview deal was good for the company’s stock in the short-term, industry analysts are not yet certain the long-term prospects are equally good.

“Given the lack of information provided by the company, it is difficult to determine whether this announcement is a positive or negative for shareholders,” Richard Herr, stock analyst for financial firm Keefe, Bruyette & Woods, wrote in a research note.

If the new subsidiary represents an effort to return Friedman Billings Ramsey to its original brokerage business, the deal could be good for the company, Mr. Herr said.

“The downside to this transaction is the new company now has to share 33 percent of the earnings from [the subsidiary] with Crestview Partners as well as other private investors,” he said.

The deal gives Crestview the right to nominate two directors to the subsidiary’s nine-member board.

If Friedman Billings Ramsey is selling the stake in its business because it needs money, “then that could foreshadow the company is experiencing stronger headwinds than we previously had thought,” Mr. Herr said.

Other risks to Friedman Billings Ramsey’s stock value include “weakness in financial markets that may affect the company’s investment banking business negatively,” Mr. Herr said. “The company’s concentration in financial services and the departure of key executives may also adversely affect the value of the shares.”

In addition, climbing interest rates have been hurting financial markets.

Friedman Billings Ramsey officials declined to comment either on the new FBR Capital Markets Corp. deal or the performance of the company’s stock.

The company’s investment banking, institutional brokerage and asset management segments contributed $534.6 million last year to its revenue, which is more than half its total revenue of $995.3 million.

Friedman Billings Ramsey earned after-tax net income of $26.6 million in the first quarter of 2006, or 16 cents per diluted share, compared with $24.4 million, or 14 cents per share, one year earlier. Its revenue reached $176.8 million, compared with $163 million in the first quarter of 2005.

Since being founded in 1989, the company has expanded in the United States and Europe by investing in mortgage securities, whole mortgage loans and other mortgage assets as well as in merchant banking opportunities.

Its customers can be found throughout the financial services, real estate, technology, health care and energy industries. It operates with nearly 2,500 employees. Major investors include NWQ Investment Management and Merrill Lynch.

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