Last summer, J. Brett Harvey, chief executive of Consol Energy Inc., a major U.S. coal-mining company, was faced with a daunting task: His firm's controlling investor, RWE Power AG of Essen, Germany, had decided to unload its 74 percent stake in Consol. But how could $1.3 billion in stock be sold quickly without depressing its value?

Harvey went to what he described as marquee German and U.S. investment banks, but stock experts there told him that it would take two to five years to find buyers for the 58 million shares RWE wanted to sell and 11 million shares in new stock that Consol wanted to sell. That was a time frame RWE rejected.

Harvey then turned to a lesser-known investment bank, Friedman, Billings, Ramsey Group Inc., which had researched Consol's coal-mining operations. He asked the firm if it could find investors for the stock and do so within months, not years.

"FBR didn't have the credibility the other banks did because of its size," Harvey said. But he said Emanuel J. "Manny" Friedman, one of FBR's co-chief executives, went with him to Germany and persuaded RWE officials to let FBR handle the sale.

Within six months, Harvey said, FBR had found institutional investors for RWE's stock. Consol's share price has risen since the stock sales began in September 2003.

For its part, FBR collected 50 cents for each of the shares it found buyers for -- a $34.5 million payday.

"All parties came out happy," Harvey said.

The Consol deal is a prime example of why FBR has vaulted into the top echelons of U.S. underwriters of stocks. Though it is a fraction of the size of major Wall Street underwriters such as Goldman Sachs Group Inc., Credit Suisse First Boston LLC, Morgan Stanley and Merrill Lynch & Co., which have huge armies of stockbrokers to sell new stock issues, the Arlington investment house has developed a reputation for being able to move stock and make money in ways its larger competitors simply can't, or won't.

In part, FBR is merely benefiting from the decline in the number of mid-size investment banks that focus on mid-size companies -- those valued at less than $10 billion, potential clients that Wall Street often ignores. In recent years, FBR's mid-size competitors, such as Alex. Brown Inc., Robertson Stephens Inc. and Hambrecht & Quist, have either shut down or been bought by larger financial institutions. In a recent interview, Friedman cited as a model Alex. Brown, an old-line Baltimore investment bank that, before being merged out of existence in the 1990s, was perennially the largest underwriter of IPOs.

But more than just investment banking trends are at work here. FBR has become a peculiar kind of money machine, a major investment bank run like a family business, an alchemy of unusual ideas and entrepreneurial chutzpah.

Building Relationships

FBR managed eight company IPOs that raised $2.1 billion last year, making it the third-biggest underwriter, measured in dollars raised, behind Goldman Sachs and Credit Suisse, and it has continued among the biggest IPO underwriters this year, according to Dealogic, a research firm that tracks deals on Wall Street. So far this year, FBR is ranked seventh, having managed deals that raised $1.09 billion.

But the number of IPOs and the amount raised is only part of the story. FBR's relationship with its corporate clients is often complex, with the firm not only acting as an investment banker, but sometimes as a principal investor and business strategist. FBR has even helped create companies to purchase its investment banking services.

In 2002, FBR co-chief executives Friedman and Eric F. Billings had a hand in forming American Financial Realty Trust, which ultimately became the biggest IPO of 2003. The deal was put together with Lewis S. Ranieri, a banking and real estate investor known on Wall Street for his pioneering work in the mortgage-backed securities market in the 1980s.

Nicholas S. Schorsch, AFR's chief executive, had first come up with the idea for creating a real estate company to buy bank branches and lease them back to banks. The company would free up capital that banks have invested in real estate and, in theory, give AFR a valuable portfolio of income-producing retail property. Along with Ranieri, AFR's chairman, Billings, Friedman and their real estate investment bankers came up with a real estate investment structure that would allow banks to get into and out of leases relatively easily.

The company raised $804 million in June 2003, during the worst IPO market in years. AFR has since bought hundreds of branches from Bank of America Corp., Wachovia Corp. and others.

"I did talk to other Wall Street firms, but there wasn't the enthusiasm or the understanding of the [bank real estate] area" shown by FBR, Ranieri said.

Billings and Friedman are co-chairmen and co-chief executives. Billings, 51, oversees FBR's investment banking and mortgage-backed securities operations. Friedman, a 58-year-old history buff, manages the private client accounts for high-net-worth individuals and the firm's hedge funds. Friedman's collection of a thousand aging stock certificates and financial documents are framed and hang on FBR's halls.

According to Dealogic, the stocks of firms for which FBR was the lead underwriting manager for their IPOs have outperformed other companies' after-IPO stocks when measured after the one-, three- and five-year periods ended Dec. 31, 2003.

"We're going to make a big fee" to underwrite the IPOs, typically 7 percent of the amount raised, Billings said as he sat in his corner office overlooking the Georgetown waterfront. "But we're adding value" for shareholders who invest in the firms FBR helps create.

FBR had the foresight and good fortune to focus on two sectors that have done well in recent years: financial services and real estate.

In addition, it has created deals internally, as it partially did with American Financial. Another business it helped create is Quanta Capital Holdings Ltd., a Bermuda insurance company that writes specialty corporate policies. Quanta was the brainchild of W. Russell Ramsey, who helped found FBR.

Ramsey, 44, left FBR's management at the end of 2001 to form his own Tysons Corner private equity firm, Capital Crossover Partners LP. However, he still sits on FBR's board of directors and holds nearly a million FBR shares, worth more than $18 million. That's far less than Friedman's $215 million stake or Billings's $184 million share, but it's enough to make Ramsey FBR's third-largest individual shareholder.

Ramsey said he left FBR "to prioritize my life," so he could be actively involved with his wife in raising his three children, and "manage money on a full-time basis."

"You cannot stay within an organization [FBR] and in good faith say, 'I'm going to do this and nothing else.' " He said he manages a $250 million portfolio at Capital Crossover.

Ramsey said that in the months after the Sept. 11, 2001, terrorist attacks he noticed that rates for property casualty insurance "were going through the roof" and figured it made sense to create a new insurer to take advantage of the higher rates and reap the benefits of owning a firm that was not saddled with claims from the past, either terrorist-related or from such ongoing issues as payouts for asbestos contamination. He started Quanta with two executives from Chubb Financial Solutions Inc., Michael J. Murphy and Tobey J. Russ. He also got FBR involved.

"I brought FBR to the table as an adviser. FBR was the underwriter and raised $550 million" in a private equity offering, Ramsey said. He said Quanta will have written that much in insurance policies by the end of 2004.

Ramsey said he owns 7 percent of Quanta, while FBR has a 5 percent stake. Quanta went public last September. FBR's 7 percent IPO underwriting fee came to $38.5 million.

On June 30, the total value of FBR's direct equity investments, including the Quanta stake, came to $221 million.

A Hunger to Succeed

The three founders were all local stockbrokers in the 1980s at Johnston, Lemon & Co., where they researched stocks and offered advice to their clients.

But, said Ramsey, "like all entrepreneurs, we wanted to run our own business." In 1989, the three, along with 14 others, formed FBR. The order of the names on the corporate logo go from oldest to youngest, as well as from the biggest to smallest investments in the fledgling operation. The firm started out offering independent stock research and institutional brokerage services. Investment banking, and the riches it would bring, would come later.

FBR's culture is free-form, beginning with the tag-team chief executive duties of its peripatetic founders. Both men appear to be in a constant stream of meetings. The place is loud; the trading floor begins a few feet from their doors.

The two senior executives are, on the surface, starkly different. The boyish-looking Billings is a Catholic with an ever-sunny disposition and smile creases around his eyes and mouth. Friedman, son of a rabbi who bought his first stock with his bar mitzvah money, is more mercurial, according to those who have worked closely with him. He is described as a superb salesman, charming and effusive, with an infectious enthusiasm. But on days when trades don't go his way, he's "a dark cloud," said one former executive, who says Friedman is an almost obsessive watcher of the stock market's daily gyrations.

"This business can be a grind," Friedman said. "It's brutally competitive."

Many of his colleagues and clients say the two men together have infused FBR with the company's biggest strengths: creativity, dexterity and a drive to make lots of money.

"They're hungry, honestly," said David C. Reymann, chief financial officer of Aether Systems Inc., a Maryland company that has used FBR's services extensively in the past year. "They are clear-thinking and they're nimble."

"This company to them is family," said Richard J. Hendrix, FBR's president. He was speaking figuratively, but both men's families do play a large role in the firm.

In fact, employees have another way of translating its acronym: Friends, Buddies and Relatives. According to FBR's proxy statement, the firm employs Billings's brother Jonathan as head of its institutional brokerage, as well as three of Jonathan's brothers-in-law. Friedman's sister-in-law also works at the firm.

FBR and its employees contributed $1.3 million last year, and $3 million so far this year, to charities and sponsorships of charitable events. A source familiar with Billings's and Friedman's personal charitable giving estimated that each gave more than $5 million of their personal money to charitable causes in 2003.

An Evolutionary Network

FBR was not always big in IPO underwriting. In fact, its business has evolved over its 15-year existence.

In 1992, the firm took its first evolutionary turn, "our big break," as Friedman described it. That was at the height of the savings-and-loan crisis, when financial institutions were on the brink and failing because of poor management and loose lending practices. FBR created a new business in the debacle: finding investors willing to recapitalize 10 failing thrifts. Friedman came up with the idea of selling rights offerings, a kind of option, to a group of institutional investors who could profit handsomely from banks and thrifts that could make it out of the early 1990s real estate crisis.

It was the genesis of FBR's distribution system -- a network of small and mid-size pension funds, money managers and institutional investors around the country that profited handsomely from FBR's early deals. FBR's Hendrix said many of these investors are overlooked when big Wall Street firms go on "road shows" to sell new stock in an IPO. He estimates that at any given time there are between 500 and 1,000 active institutional accounts at FBR. (The firm does business only with institutional clients and wealthy investors, as opposed to, for instance, Merrill Lynch, which has a sprawling network of brokers serving small, individual accounts.)

"It wasn't a grand plan, it's just the way the business developed," Hendrix said. "Many of our clients are smaller institutions, many of them located in the Southeast or Midwest. We've included them in our transactions, and as a result they are always listening to us and our brokers."

It's that network that allowed FBR to sell $2.1 billion worth of stock in IPOs last year. In addition, FBR moved $2.5 billion in nine private stock placements in 2003.

"For us, all of a sudden, the scale of our business exploded," Friedman said.

It was a sweet turn of events, especially after the 1990s, when FBR was frozen out of the big hot tech deals. Even local tech firms with close ties to FBR often chose to go to Wall Street to manage their IPOs. The collapse of certain stocks also hurt the firm.

"In '98, there was a meltdown in a lot of stocks we held," Friedman said, "and in 2000 [when the technology stock bubble burst] we got hit, but barely got hurt."

FBR had to lay off 25 workers in 1998 and 40 in 2001, leaving it with 300 employees. It now has 600 employees, up from fewer than 500 at the end of last year.

Last year, FBR executed another deal that puzzled some but had many others marveling at its ingenuity. It merged its investment banking business with its real estate investment trust, FBR Asset Investment Corp. Under the terms of the deal, the investment bank became a subsidiary of the investment trust, which is not taxable, saving the company millions in taxes.

FBR also said that because the combined structure resulted in a vastly bigger capitalization, it would help the firm become more visible in financial circles.

In recent months, FBR has raised more than $1 billion for three well-known companies through 144a offerings, which are private placements of stock to institutional investors that are typically precursors to a bigger public stock offering.

FBR raised $160 million in June for J.E. Robert Cos. of Alexandria, one of the biggest real estate asset managers in the country, to form a new mortgage-backed securities REIT. Then in early July, it raised $200 million to create DiamondRock Hospitality Inc., a new REIT formed by former Marriott International Inc. executives to buy Marriott hotels.

Early this month FBR raised $780 million in a 144a offering for KKR Financial Corp., a new mortgage-backed securities REIT to be managed by New York private equity and leveraged buyout firm Kohlberg Kravis Roberts & Co.

FBR's stock price and profits reflect the inherent up-and-down nature of the investment banking business. The company has gone through a period of substantial growth -- it earned $81.2 million on revenue of $212.7 million in the three months ended June 30, compared with net income of $58.8 million on revenue of $148.4 million in the same quarter of 2003.

Yet FBR's stock price is well off its March high of $28.70 a share. It closed Friday at $17.92. Analysts said the rising interest-rate environment should squeeze the profit on its $12 billion portfolio of mortgage-backed securities; the portfolio is a main driver of the company's profitability. The decline of the IPO market in recent weeks also has dampened prospects for FBR's core investment banking business in the real estate and financial service sectors.

But FBR, which had $1.7 billion in shareholders equity at the end of March, will continue pushing to get bigger, Friedman said. "Not that it's a goal, but I'd like to see 1,000 employees, with $4 billion in capital."

Emanuel J. Friedman, left, and Eric F. Billings are co-chief executives of Friedman, Billings, Ramsey Group, an Arlington firm that has become a leader among investment banks.Founders Eric F. Billings, left, W. Russell Ramsey and Emanuel J. Friedman started out as stockbrokers at Johnston, Lemon & Co. in Washington. They formed FBR in 1989, offering independent stock research and institutional brokerage services. The firm evolved into an investment bank.