Free Bucks, Really!
FBR Group (FBR), perhaps better known as Friedman, Billings, Ramsey, is a pretty tight-knit group of investment bankers and managers. They’ve weathered good times and bad, such as the fallout from the firm’s illegal short sales of dot-com client CompuDyne. FBR rebounded from the scandal, however, and just three-and-a-half years ago, the firm was celebrating the placement of $783 million in common stock of subprime poster child New Century Financial (NEWCQ.PK).
FBR Group has recently fallen upon tough times again, as its subprime mortgage originator First NLC has had to file bankruptcy and bad bets on mortgage loans have caused FBR stock to sink like a stone over the past two years. Never fear, though, remaining management is here!
Despite FBR’s serious underperformance as a diversified REIT and calamitous First NLC investment, FBR’s Board of Directors granted CEO and Chairman Eric Billings a $2.48 million bonus in cash and stock, a 3.5 million share “retention” restricted stock grant, and a $2 million cash “retention” payment. Makes us wonder if there is any way to make a short bet on Billings’ management skills?
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February 28th, 2008 at 2:15 pm
Though I take your comment as tongue-in-cheek, there is indeed a way to short sell FBR Group’s (FBR) management skills: through its majority-owned, public-held sub FBR Capital Markets, Inc. (FBCM).
The former consolidted entity has been involved with nearly every financial blowup of the last decade: dot-bombs; building/HVAC maintenance, bio-wrecks; thrifts, sub-prime mortgages and, now, real estate. It is almost a given that if FBR is involved then it’s en vogue and likely to implode.
After selling a stake in FBCM in a private round in July 2006 and bailing out those shareholders in an IPO at $17/share in June 2007, my guess is that FBR milks this captive cow for whatever little milk it produces. With shares now trading around $7, it looks like a steal: $450mn equity market cap supported by $507mn book equity, which is a result of $384mn in cash and no on-balance sheet funded debt…and it is cheap.
However, watch carefully as operating losses from weak revenue production coupled with sustained generous compensation, team acquisitions and sign-on bonuses eat right into that cash balance. It likely won’t happen immediately though. FBR’s history of the latter exercises (acquisitions and poaching) has been mixed and management has demonstrated its penchant for questionable enrichment.