Last of FBR's Founders to Retire as CEO
Billings Cedes Day-to-Day Control of Storied Firm's Investment Banking Unit

By Thomas Heath
Washington Post Staff Writer
Tuesday, December 23, 2008

Eric F. Billings will retire as chief executive at FBR Capital Markets at the end of the year, closing a chapter in the history of a Washington business venture that made fortunes for its namesake founders only to struggle with subprime mortgages and other difficulties in recent years.

FBR Capital Markets President Richard J. Hendrix will succeed Billings effective Jan. 1, 2009, the firm's board announced yesterday, giving day-to-day control of the business to a non-founder for the first time since its inception two decades ago.

Billings, 56, will remain chairman of FBR Capital Markets and its senior affiliate, Friedman, Billings, Ramsey Group. FBR Group is the investment bank Billings and two others founded in 1989 in the unlikely environs of the District, 250 miles from Wall Street.

FBR Capital Markets is an outgrowth of FBR Group, which owns a majority of shares in the junior firm.

W. Russell Ramsey, a George Washington University alum and former Pitney Bowes salesman, left FBR Group in 2001. Emanuel J. Friedman, a former history teacher, resigned in 2005 after a Securities and Exchange Commission investigation into insider trading. There were no convictions or admissions of guilt, and the case of one person who fought the investigation was summarily dismissed. Friedman and some others at FBR paid fines. Ramsey and Friedman both operate investment firms in Northern Virginia.

Now, FBR Capital Markets -- with its asset management, investment research and brokerage arms -- is expected to carry on the future of the brand without Billings's direct involvement.

"I'm 56 years old, and it's a young man's game," Billings said yesterday. "This is the best thing for the company. It just expands the leverage ability of the firm, and it helps me get out and helps with client development and creativity and building the business. It gets me away from the day-to-day management, which I've been doing for a long time -- 18 years."

Hendrix, 43, said the company would continue a strategy he and Billings formulated more than a year ago.

"FBR Capital Markets has always been the essence of FBR and will continue to be -- from a client standpoint and from a banking standpoint -- the centerpiece of FBR," Hendrix said.

As one of the most highly compensated executives in the region, Billings, a University of Maryland graduate who once worked for Legg Mason, has a high profile in the Washington business, social and philanthropic worlds.

Boyish and handsome, with a floppy head of hair, Billings is known as much for heading his eponymous firm as for giving millions of dollars to Catholic causes. He was highly visible as the host of the FBR Open, the PGA Tour golf tournament that draws celebrities from politics, sports and industry.

FBR's three founders met when they worked together at Johnston, Lemon & Co., the century-old Washington brokerage where they bought and sold stocks for rich investors.

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.

In 2005, the company posted a loss of $170.9 million. Billings didn't take a bonus that year, earning just his $480,000 salary plus a grant of restricted stock.

Earlier this month, FBR Capital Markets laid off 70 more employees, a little over 10 percent of its workforce, as it continued to grapple with a struggling economy. The company, which employed 758 a year ago, will have about 580 employees at year's end.

"Every company has its ups and downs, and the evaluation of companies in the first five, 10 and 20 years are often fraught with cyclicality, and we're not any different," Billings said.

Billings once said he never saw a single round of play at the FBR golf event because he was constantly working the corporate tents trying to drum up new business. And creating new business is where he will concentrate his efforts moving ahead.

"I will be [in the office] every single day, helping develop business and bringing banking clients. I've been at it for a long time."

Staff writer Michael S. Rosenwald contributed to this report.