- The Washington Times - Tuesday, January 8, 2008

Investment banking firm FBR Capital Markets Corp. is feeling the brunt of the housing market’s downturn along with other major corporations in the Washington area whose income depends partly on the real estate industry.

Its shares have fallen 47 percent in the past six months. Its stock, FBCM on the Nasdaq Stock Market, closed yesterday at $8.54 a share, down 16 cents or just under 2 percent from Friday’s closing price. Six months ago, it was trading at $16 a share.

Arlington-based FBR was spun off from Friedman Billings Ramsey Group last summer. Friedman Billings Ramsey, without its investment banking unit, is now a real estate investment trust also based in Arlington. It remains the majority owner of FBR. The newly separate company provides investment banking, merger and acquisition advisory services, institutional brokerage, financial research, asset management and private wealth services.

The outlook for the company follows economic trends typical for much of the housing industry.

“We believe FBCM could face declining revenue and earnings in coming periods,” said Daniel T. Fannon, a research analyst for the financial firm Jefferies & Co.

Mortgage giants Freddie Mac of McLean and Fannie Mae of the District, along with Capital One Financial of McLean, are reporting similar challenges as foreclosures plague the mortgage market.

FBR was counting on new transactions, such as in foreign markets, to boost earnings.

“Despite management’s expectations of a strong deal pipeline heading into [the fourth quarter of 2007], it appears that few of these deals have materialized,” Mr. Fannon said.

Lehman Brothers was slightly more optimistic, saying in a recent research note that FBR’s “deal backlog remains fairly strong,” but that “economic uncertainty” has delayed transactions.

No analysts are ignoring the risk that FBR could face bankruptcy or end up a loser among investment firms.

Still, the company is well capitalized with about $406 million in cash and securities and another $85 million in long-term investments.

FBR has diversified its investments into business lines unrelated to real estate.

The company acknowledged problems in the housing market when it announced third-quarter earnings.

“Our investment banking and institutional brokerage revenues reflect that slowdown,” said Richard Hendrix, chief operating officer.

FBR Capital Markets reported third-quarter net income of $267,000, or less than 1 cent per share, compared with a loss of $22.6 million, or 37 cents per share, in the third quarter of 2006. Its revenue more than doubled to $106.2 million from $42 million one year earlier.

In addition to the Washington area, its roughly 700 employees work in Boston; Dallas; Houston; Irvine, Calif.; London; New York; San Francisco; and Sydney, Australia.

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