FBR continues cost-cutting by subleasing space

By Danielle Douglas
Monday, November 8, 2010

FBR Capital Markets, an investment banking, research, brokerage and asset management company, has been vacating more floors of its Arlington headquarters, subleasing the space as it continues to reduce its workforce in an effort to reposition itself.

Once the Washington area's largest homegrown investment house, Friedman, Billings, Ramsey Group -- FBR Capital's predecessor -- had tremendous growth in the late 1990s, only to experience a dizzying fall in the past five years. At one point in 2008, FBR Capital hired an adviser to consider its options, including a possible sale.

The existing company's financial outlook has improved since then, but not enough to ward off further cuts.

Over the first nine months of this year, FBR lost roughly $40.6 million, missing its quarterly projections of profitability. During that time, the company let go 95 employees. It has subleased some 6,000 square feet at Potomac Tower, or 1001 N. 19th St., in the past few weeks, with plans to give up more space, according to the company's leasing agent, UGL Equis. To date, FBR has subleased nearly a third of the 98,417 square feet of space it has under contract at the building.

"The cost-cutting efforts we have recently undertaken will improve our results and enhance our ability to generate profits in coming quarters," Richard Hendrix, FBR's chief executive, told analysts in a third-quarter earnings call last month. The company declined a request to provide comment for this article.

FBR's troubles stem from severe losses in subprime mortgage investments. It has been downsizing since 2008, when it laid off 190 employees, closed several offices and scaled back international operations. The parent company eventually split itself in two, with the high-risk mortgages placed in one independent entity and other investment banking operations placed in another, FBR Capital.

While the move eliminated a lot of risk for FBR Capital, the company is still being battered by sluggish activity in the investment banking sector.

Despite the struggles, FBR has expressed interest in acquisitions, most recently completing the purchase of the mutual fund operations of AFBA 5Star in March. The company has also made a handful of additions to its investment banking and credit sales divisions.

"We are going to continue to look both organically and externally at ways to grow the business, and we expect to have success in both avenues," Hendrix said.

Analysts have maintained faith in FBR, applauding the company's expense reductions in a tough operating environment. "The issues have been that the market for their business hasn't been great," said Devin Ryan, an analyst at Sandler O'Neill & Partners. "They've been moving in the right direction and have a conservatively marked balance sheet with a lot of cash and low leverage."

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