FBR Plans IPO for Capital Markets Unit

Friedman, Billings, Ramsey Group plans to raise as much as $243.2 million through an initial public offering of its capital markets subsidiary, separating that business from its mortgage and investing operations.

FBR Capital Markets intends to offer up to 13.5 million shares for $16 to $18 apiece, according to a filing yesterday with the Securities and Exchange Commission. FBR plans to sell 11.75 million shares and offer 1.76 million more if there is sufficient demand, the company said.

FBR, an Arlington investment bank, would own 53 percent of FBR Capital Markets after the offering. FBR operates as a qualified real estate investment trust. REITs are exempt from federal and usually state corporate income taxation subject to meeting certain IRS rules, including a requirement that 90 percent of taxable income be paid as a dividend.

"By separating the capital markets and asset management businesses contributed to us from FBR Group's principal investing and mortgage finance businesses, we believe we have made it easier for shareholders to meet their desired specific investment objectives," the filing said.

FBR Capital Markets would not receive proceeds from the sale. Instead, the money would go to FBR. The filing did not say how the proceeds would be used.

The capital markets unit was formed in June as a holding company for FBR's investment banking, institutional brokerage and asset management divisions, the filing said. As a taxable REIT subsidiary of FBR, FBR Capital Markets' profit is subject to corporate income tax, the filing said.

FBR's capital markets unit had a net loss of $9.84 million for 2006, compared with profit of $48.1 million in 2005, according to the filing. Revenue including interest expense dropped 32 percent in 2006.

In July, FBR Capital Markets sold 18 million shares for $270 million to two affiliates of Crestview Capital Partners, a New York private-equity firm, in a private placement. Crestview, which was started by two former partners at Goldman Sachs Group, owns about 12 percent of FBR Capital Markets before the offering, according to the filing.

Shares in FBR have fallen 30 percent this year, giving the company a market value of about $973 million, as rising mortgage delinquencies reduced the value of the firm's investments in home loans.

FBR stock closed yesterday at $5.57 per share, up 6 cents.

FBR is managing the stock sale itself. The shares are to trade under the symbol FBCM on the Nasdaq Global Market, according to the filing.