Friedman Billings Ramsey Group Inc. is a full service investment banking firm focused on investment bankingresearchinstitutional brokerage & asset management.The Co seeks to identify rapidly changing industries & those that are not fully understood or appropriately valued by the market. Once an industry is identifiedthe Co develops a thorough understanding of the fundamentals & opportunities of that indst. The Co offers significant underwriting capabilities & brokerage services as well as advisory services in mergersacquisitions & strategic partnerships. Friedman Billings Ramsey Group Inc. has a market cap of $67 million; its shares were traded at around $0.42 with and P/S ratio of 0.1.
Highlight of Business Operations:During the three months ended March 31, 2009, we completed the extinguishment of $201.7 million of long-term debt at a gain of $132.5 million and reduced our MBS portfolio by $100.0 million, substantially completing the current phase of the strategy announced on October 23, 2008. In addition, FBR Capital Markets also liquidated its remaining MBS portfolio of $454.3 million and related interest rate caps and repurchase agreements, recognizing an aggregate net investment loss of $1.0 million. The Company also liquidated $550.0 million of its U.S, Treasury bond holdings and related repurchase agreements, recognizing no gain or loss from the transaction.
The operating loss from capital markets segment increased to $15.6 million for the first quarter of 2009 from $11.0 million for the first quarter of 2008. This increase in loss is primarily attributable to a $62.1 million decrease in investment banking revenues during the first quarter of 2009, reflecting a lower volume of capital raising activity and a decrease in advisory revenues. The lower volume of capital raising activity during the first quarter of 2009 and the year ended December 31, 2008 reflects the continued effect that the dislocation in credit markets has had on the U.S. equity markets and equity underwriting activity. FBR Capital Markets institutional brokerage sales and trading revenues increased from $31.4 million for the quarter ended March 31, 2008 to $39.6 million for the quarter ended March 31, 2009. This increase in institutional brokerage sales and trading revenues is attributable to both the expansion of FBR Capital Markets sales and trading platform and the increased volatility in the market due to the
current economic environment. A decrease in FBR Capital Markets asset management activities reflect a decrease in base management fees (including mutual fund administrative fees) from $4.6 million for the three months ended March 31, 2008 to $2.4 million for the three months ended March 31, 2009. The decrease in management fees during the first quarter of 2009 reflects the effects of the decrease in average assets under management for the quarter compared to the quarter in the prior year. FBR Capital Markets total net assets under management were $1.2 billion at March 31, 2009, decreasing from $1.4 billion at December 31, 2008. Net assets under management decreased 14.3%, or $0.2 billion, during the first quarter reflecting the continued downturn in the equity markets. Variable expenses decreased $31.2 million, or 59.7%, which is attributable to reduced compensation expense and costs related to the decrease in net revenues. The decrease in fixed and other compensation expenses of $18.6 million reflects cost reduction initiatives which include a reduction in employees undertaken by FBR Capital Markets.
Principal investing interest revenue decreased 89.6% from $24.9 million in the first quarter of 2008 to $2.6 million in the first quarter of 2009. Net investment income increased from a loss of $14.7 million in the first quarter of 2008 to income of $6,000 in the first quarter of 2009. Decrease in interest income year over year was a result of the lower average balance in the MBS portfolio reflecting the Companys plan to downsize the MBS portfolio in order to reduce exposure to deteriorating market conditions while at the same time generating additional cash to fund the extinguishment of long-term debt.
As of March 31, 2009, the Companys cash and cash equivalents totaled $224.6 million, representing a net decrease in the balance of $30.1 million for the quarter ended March 31, 2009. The cash used in operating activities of $37.6 million was attributable primarily to a reduction in cash related to operating activities of FBR Capital Markets. The cash provided by investing activities of $1.1 billion relates primarily to proceeds from sales and principal receipts of MBS and proceeds from the maturity of U.S. Treasury bonds during the first quarter of 2009. The cash used in financing activities of $1.1 billion relates primarily to repayments of repurchase agreements used to finance a portion of the MBS sold and U.S. Treasury bonds that matured. Of the $224.6 million in cash and cash equivalents, $207.0 million was held by FBR Capital Markets. The Companys use of the funds held by FBR Capital Markets and its subsidiaries is subject to approval by a majority of the disinterested directors serving on the FBR Capital Markets Board of Directors. We cannot guarantee that we will be able to access these funds. In addition, regulatory requirements applicable to FBR Capital Markets broker-dealer subsidiaries could also limit our ability to access funds held by FBR Capital Markets and its subsidiaries.
Our principal assets consist of MBS, cash and cash equivalents, receivables, long-term investments and securities held for trading purposes. As of March 31, 2009, liquid assets consisted primarily of cash and cash equivalents of $224.6 million, $207.0 million of which was held by FBR Capital Markets, and net investments in agency MBS of $1.8 million. Cash equivalents consist primarily of money market funds invested in debt obligations of the U.S. government. The Companys total assets decreased from $1.6 billion at December 31, 2008 to $399.3 million as of March 31, 2009. The decrease in total assets reflects the effects of a decrease in the Companys cash used to extinguish long term debt and a decrease of investments in MBS and U.S. Treasury bonds.
Read the The complete ReportFBR is in the portfolios of NWQ Managers of NWQ Investment Management Co, Charles Brandes of Brandes Investment, Tom Gayner of Markel Gayner Asset Management Corp.