Last of FBR's Founders to Retire as CEO

Young and eager, with a knack for investing, they began Friedman, Billings, Ramsey Group in a downtown District office replete with dented desks and worn chairs, far from the view Billings now has from his Rosslyn office high above the Potomac. FBR was kind of funky. Jeans, open-necked shirts and even shorts were in. Suits and ties were out.

It quickly emerged as a force on the Washington financial scene with a strong bench of analysts, a focus on financial services and technology, and investors eager to gobble up the dozens of public offerings the firm was selling.

At the time, savings-and-loans were floundering after lending for commercial and residential properties put the industry on the verge of collapse. As a new company, FBR helped raise money for the thrifts, providing them with the capital they needed to recover.

FBR's founders saw financial services -- particularly mortgage finance -- as a way for the small-fry firm to make its name among the much older and better-established banks. In particular, FBR became one of the first banks to realize the benefits from forming real estate investment trusts (REITs), a fast-emerging vehicle for property acquisition and development that would become a staple of real estate investing.

By 1996, seven years after it began, FBR had become Washington's biggest stock trading firm, raising $7 billion in capital for its clients by making an end run around Wall Street and dealing directly with the mutual funds, pension plans and other institutional investors.

Friedman articulated the vision: Money was no longer in Wall Street and New York banks, but rather it had moved into the hands of pension plans, mutual funds and other billion-dollar money managers across the country.

In 1997, FBR created a REIT to buy shares in mortgage securities, companies and other real estate investment trusts. The move largely insulated the firm from the Internet boom and bust and set the table for it to go on a tear when the economy began to rebound after the Sept. 11, 2001, terrorist attacks.

Also in 1997, FBR went public, raising $206 million in its initial public offering. Everyone got rich.

Billings took home $4.6 million in total compensation in 2007, including $960,000 in salary and a $1.8 million bonus. He remains a major shareholder in the company and its related ventures. He owns 3,749,388 shares, or 2.5 percent of the outstanding stock in FBR Group, and 605,225 shares, or 1 percent, of FBR Capital Markets.

As the company expanded, it sought more name recognition. Starting in 2004, FBR bought the rights to the former Phoenix Open, one of the richest and most raucous tournaments in professional golf. Though it was 2,000 miles from its hometown office, the FBR Open drew attention to the firm and cost FBR about $8 million a year. Sports figures, politicians and executives arrived from around the country to schmooze with the Washington elite that FBR brought to the event. Billings personally escorted former President George H.W. Bush at one FBR Open ceremony.

Some of the company's big mistakes came in its aggressiveness in the mortgage industry, which worked like a charm in the good years. By 2003, FBR was taking a new mortgage company public or raising money for one every few weeks. In 2004, FBR's earnings rose 74 percent, to $350 million, and revenue was more than $1 billion for the first time.

But it invested $550 million in the subprime mortgage business in early 2005. By the end of 2005, FBR knew it was in trouble. It announced that it would sell mortgage securities and write down $58 million.