FBR entertains sale of asset management unit


Eric Bilings, chairman of FBR & Co., in his Arlington office. Billings has announced he will be leaving the firm next month. (Evy Mages/For Capital Business)
June 3, 2012

Despite revenue growth in its asset management business, FBR & Co. has hired outside advisers to evaluate a possible sale of the division.

In a Securities and Exchange Commission filing, the Arlington-based investment bank said it is considering “strategic alternatives” for the unit, including siphoning off a portion or all of the business. FBR wrote that it will not provide further comment on the matter unless it reaches a definitive deal.

As part of its asset management business, FBR oversees a family of 11 mutual funds that produced $4 million in fee revenue in the first quarter, up from $3.9 million a year earlier. Assets under management in the first three months of the year increased 11.8 percent to $1.9 billion.

At the end of 2011, the division contributed 10.2 percent of the firm’s total net revenue, nearly double the 5.7 percent a year earlier. Management fees in the first quarter were roughly 37 percent higher than the same period in 2009, one of the lowest points in the cycle. But fees remain about 27 percent below the highs recorded in the first three months of 2007.

“Weak flows into equity mutual funds, a reticence among investors to put capital at risk through new investments, and a decrease in trading volumes for both equity and fixed income securities resulted in significantly diminished volume of equity capital markets activity,” said FBR officials, in a first-quarter earnings filing.

According to data complied by Greenwich Associates, the industry took in $10.9 billion in fees last year from asset managers, the lowest commissions from equities trading since 2006.

Yet FBR chief executive Richard Hendrix seemed optimistic in a recent earnings call that growth in the company’s asset management business could be sustained. “We continue to look for ways to capi­tal­ize on the stellar long-term performance and extensive client relationships this business possesses,” he told analysts.

However, Hendrix is known for taking tough measures to ensure the health and viability of the company. Facing mounting losses in the wake of the downturn, FBR reduced its staff by 120 employees. The company also exited its prime brokerage business in March 2011 amid weakening market conditions.

These moves have helped FBR stem losses amid tepid financial recovery. The company generated earnings of $438,000 in the first quarter, compared to a net loss of $1.9 million a year earlier.

If the asset management division goes up for sale, it would likely attract interest from commercial banks looking to beef up their wealth management divisions. Catering to the high-net worth crowd has helped a number of banks increase fee income at a time when institutions face new regulatory and economic pressures.

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