FBR & Co (FBRC) 8-K FBR Capital Markets Reports Third Quarter Results

Contacts:

Media: 703.469.1004 or media@fbr.com

Investors: Bradley J. Wright at 703.469.1080 or fbcmir@fbr.com

FBR Capital Markets Reports Third Quarter Results

ARLINGTON, VA, October 22, 2008 - FBR Capital Markets Corporation (NASDAQ: FBCM) (FBR Capital Markets) today reported a net after-tax loss of $28.6 million, or $0.44 per share (diluted), for the quarter ended September 30, 2008 compared to net after-tax earnings of $0.3 million in the third quarter of 2007. For the nine months ending September 30, 2008, FBR Capital Markets reported a net loss of $64.0 million after tax, or $0.99 per share (diluted), compared to net after-tax earnings of $33.0 million, or $0.51 per share (diluted), for the first nine months of 2007.

During the quarter, the Company implemented a cost reduction initiative that targeted annualized fixed cost reductions of $30 million and variable cost reductions that together will result in a material lowering of break even levels. Importantly, the Company operated at cash break even levels in September as a result of the cost reductions initiated in August, though most of the benefit of these reductions is still to be realized.

Included in the quarterly results were severance expenses of $3.7 million related to cost reduction initiatives undertaken during the quarter and merchant banking write downs and other investment losses totaling $11.0 million. Excluding these non-operating charges, the third quarter loss would have equaled $19.5 million after tax.

The aggregate of cash and net cash invested in floating rate securities totaled approximately $294 million at quarter end of which $145 million was reported as cash. Following the quarter, the Company refinanced a portion of these floating rate securities through an additional repurchase agreement increasing its stated cash position to approximately $230 million. Also subsequent to quarter end, the Company repurchased 6.7 million shares at an average price of $5.02.

“In a number of ways, FBR Capital Markets has been and will continue to be a beneficiary of the current industry dislocation. The most visible impact has been a further uptick in our institutional brokerage revenue,” said Richard J. Hendrix, President and Chief Operating Officer of FBR Capital Markets. “Additionally, our cost reduction actions have positioned us to be able to add many talented and experienced professionals to our franchise even as we reduce our breakeven. In the last six months, we have added over three dozen senior capital markets professionals who are today a key part of strengthening our franchise through this downturn.”

Capital Markets

In the third quarter, FBR Capital Markets generated investment banking revenues of $12.8 million compared to $8.2 million in the second quarter of 2008 and $66.2 million in the third quarter of 2007. During the third quarter of 2008, investment banking revenues included $6.0 million generated by the Company’s mergers and acquisitions advisory group.

In its institutional brokerage business, FBR Capital Markets extended its growth trajectory by posting $36.4 million in third quarter revenue compared to $34.8 million in the second quarter of 2008 and $27.2 million in the third quarter of 2007 - a year over year increase of 34%. Year-to-date institutional brokerage revenues of $103.0 million are 20% higher than the $85.7 million recorded in the first nine months of 2007.

Asset Management

In FBR Capital Markets’ asset management business, management and incentive fees were $3.7 million for the third quarter of 2008, compared to $4.2 million in the second quarter of 2008 and $6.2 million in the third quarter of 2007. Net assets under management as of September 30, 2008 were $1.7 billion compared to $1.9 billion at the end of the second quarter 2008 and $2.7 billion as of September 30, 2007.

Merchant Banking and Long Term Investments

As of September 30, 2008 FBR Capital Markets had aggregate merchant banking and long term investments of $65.7 million compared to $76.4 million at the end of last quarter. Charges of $9.1 million were taken during the quarter related to investment impairments.

Looking Ahead

“Going forward we will be operating in a market that is not only unprecedented in the extent and severity of its dislocation, but where the rules of the road and a large part of the competitive landscape has changed, and are continuing to change,” said Eric F. Billings, Chairman and Chief Executive Officer of FBR Capital Markets. “We believe that the strength of our balance sheet, our reduced cost structure, the depth and breadth of our banking, brokerage and research platforms, the quality and talents of our people and our proven ability to react quickly and flexibly to market opportunities will serve us well in the future. As conditions allow, we fully expect to participate in substantial capital-raising opportunities such as the recapitalizations of financial institutions where we have an extensive track record of success.”

Investors wishing to listen to the earnings conference call at 9:00 A.M. U.S. EDT, Wednesday, October 22, 2008, may do so via the Web at:

http://phx.corporate-ir.net/phoenix.zhtml?c=204322&p=irol-irhome

Replays of the webcast will be available after the call.

FBR Capital Markets Corporation (FBR Capital Markets) provides investment banking*, merger and acquisition advisory services*, institutional brokerage*, research*, and asset management and private wealth services. FBR Capital Markets focuses capital and financial expertise on seven industry sectors: consumer, diversified industrials, energy & natural resources, financial institutions, insurance, real estate, and technology, media & telecom. FBR Capital Markets is headquartered in the Washington, D.C. metropolitan area with offices in Arlington, VA; Boston; Dallas; Houston; Irvine; New York; San Francisco; and London. For more information, please visit www.fbrcapitalmarkets.com .

*Friedman, Billings, Ramsey & Co., Inc.

Statements in this release concerning future performance, developments, events, market forecasts, revenues, expenses, earnings, run rates and any other guidance on present or future periods, constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the effect of demand for public offerings, activity in the secondary securities markets, interest rates, costs of borrowing, interest spreads, mortgage pre-payment speeds, risks associated with merchant banking investments, the realization of gains and losses on principal investments, available technologies, competition for business and personnel, and general economic, political and market conditions. For a discussion of these and other risks and important factors that could affect our future results and financial condition, see "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Financial data follows.

# # #

FBR CAPITAL MARKETS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)

	Quarter ended
	September 30,
	2008			%			2007		%
REVENUES:
Investment banking:
Capital raising	$	6,762			14.8	%	$	49,691		46.8	%
Advisory		5,999			13.1	%		16,480		15.5	%
Institutional brokerage:
Principal transactions		2,610			5.7	%		968		0.9	%
Agency commissions		33,792			73.8	%		26,219		24.7	%
Asset management:
Base management fees		3,710			8.1	%		6,119		5.8	%
Incentive allocations and fees		-			0.0	%		82		0.1	%
Interest income		8,680			19.0	%		5,223		4.9	%
Net investment (loss) income		(11,043	)		-23.6	%		1,493		1.4	%
Other		184			0.3	%		213		0.2	%
Total revenues		50,694			111.2	%		106,488		100.3	%
Interest expense		5,139			11.2	%		316		0.3	%
Revenues, net of interest expense		45,555			100.0	%		106,172		100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		55,604			121.5	%		67,035		63.1	%
Professional services		9,281			20.3	%		9,195		8.7	%
Business development		5,189			11.3	%		6,304		5.9	%
Clearing and brokerage fees		3,810			8.3	%		3,911		3.7	%
Occupancy and equipment		8,077			17.6	%		8,671		8.2	%
Communications		5,700			12.5	%		5,717		5.4	%
Other operating expenses		4,576			10.0	%		3,308		3.1	%
Total non-interest expenses		92,237			201.5	%		104,141		98.1	%
(Loss) income before income taxes		(46,682	)		-101.5	%		2,031		1.9	%
Income tax (benefit) provision		(18,122	)		-30.4	%		1,764		1.7	%
Net (loss) income	$	(28,560	)		-71.1	%	$	267		0.2	%
Basic (loss) earnings per share	$	(0.44	)				$	-
Diluted (loss) earnings per share	$	(0.44	)				$	-
Weighted average shares - basic (in thousands)		64,988						64,122
Weighted average shares - diluted (in thousands)		64,988						64,185

FBR CAPITAL MARKETS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)

	Nine months ended
	September 30,
	2008			%			2007		%
REVENUES:
Investment banking:
Capital raising	$	75,632			37.8	%	$	263,899		63.0	%
Advisory		15,267			7.6	%		29,090		6.9	%
Institutional brokerage:
Principal transactions		13,455			6.7	%		7,156		1.7	%
Agency commissions		89,499			44.7	%		78,521		18.7	%
Asset management:
Base management fees		12,507			6.2	%		18,007		4.3	%
Incentive allocations and fees		-			0.0	%		302		0.1	%
Interest income		16,022			8.0	%		22,135		5.3	%
Net investment (loss) income		(15,326	)		-7.5	%		4,206		1.0	%
Other		710			0.3	%		754		0.3	%
Total revenues		207,766			103.8	%		424,070		101.3	%
Interest expense		7,677			3.8	%		5,252		1.3	%
Revenues, net of interest expense		200,089			100.0	%		418,818		100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		174,740			87.2	%		234,703		56.0	%
Professional services		29,285			14.6	%		32,705		7.8	%
Business development		23,833			11.9	%		27,550		6.6	%
Clearing and brokerage fees		10,775			5.4	%		9,599		2.3	%
Occupancy and equipment		25,045			12.5	%		23,980		5.7	%
Communications		17,908			8.9	%		16,931		4.0	%
Other operating expenses		11,389			5.8	%		8,834		2.2	%
Total non-interest expenses		292,975			146.3	%		354,302		84.6	%
(Loss) income before income taxes		(92,886	)		-46.3	%		64,516		15.4	%
Income tax (benefit) provision		(28,903	)		-12.3	%		31,483		7.5	%
Net (loss) income	$	(63,983	)		-34.0	%	$	33,033		7.9	%
Basic (loss) earnings per share	$	(0.99	)				$	0.51
Diluted (loss) earnings per share	$	(0.99	)				$	0.51
Weighted average shares - basic (in thousands)		64,741						64,189
Weighted average shares - diluted (in thousands)		64,741						64,243

FBR CAPITAL MARKETS CORPORATION Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited)

	For the
	nine months ended
	September 30, 2008			Q-3 08			Q-2 08			Q-1 08
Revenues
Investment banking:
Capital raising	$	75,632		$	6,762		$	3,961		$	64,909
Advisory		15,267			5,999			4,192			5,076
Institutional brokerage:
Principal transactions		13,455			2,610			4,888			5,957
Agency commissions		89,499			33,792			29,891			25,816
Asset management:
Base management fees		12,507			3,710			4,153			4,644
Interest		16,022			8,680			4,881			2,461
Net investment (loss) income		(15,326	)		(11,043	)		745			(5,028	)
Other		710			184			282			244
Total revenues		207,766			50,694			52,993			104,079
Interest expense		7,677			5,139			2,505			33
Revenues, net of interest expense		200,089			45,555			50,488			104,046
Non-interest expenses
Compensation and benefits		174,740			55,604			48,273			70,863
Professional services		29,285			9,281			8,841			11,163
Business development		23,833			5,189			6,624			12,020
Clearing and brokerage fees		10,775			3,810			3,367			3,598
Occupancy and equipment		25,045			8,077			8,361			8,607
Communications		17,908			5,700			6,165			6,043
Other operating expenses		11,389			4,576			4,080			2,733
Total non-interest expenses		292,975			92,237			85,711			115,027
Loss before income taxes		(92,886	)		(46,682	)		(35,223	)		(10,981	)
Income tax benefit		(28,903	)		(18,122	)		(9,974	)		(807	)
Net loss	$	(63,983	)	$	(28,560	)	$	(25,249	)	$	(10,174	)
Loss before income taxes as a percentage of net revenue		-46.4	%		-102.5	%		-69.8	%		-10.6	%
ROE (annualized)		-17.8	%		-23.8	%		-20.4	%		-8.1	%
Total shareholders' equity	$	452,488		$	452,488		$	481,653		$	503,033
Basic loss per share	$	(0.99	)	$	(0.44	)	$	(0.39	)	$	(0.16	)
Diluted loss per share	$	(0.99	)	$	(0.44	)	$	(0.39	)	$	(0.16	)
Ending shares outstanding (in thousands)		65,034			65,034			64,874			64,765
Book value per share	$	6.96		$	6.96		$	7.42		$	7.77
Gross assets under management (in millions)
Managed accounts	$	276.8		$	276.8		$	275.7		$	333.9
Hedge & offshore funds		29.6			29.6			35.5			45.1
Mutual funds		1,433.2			1,433.2			1,553.4			1,702.9
Private equity and venture capital funds		17.2			17.2			21.1			21.4
Total	$	1,756.8		$	1,756.8		$	1,885.7		$	2,103.3
Net assets under management (in millions)
Managed accounts	$	276.8		$	276.8		$	275.7		$	333.9
Hedge & offshore funds		27.5			27.5			33.4			40.4
Mutual funds		1,427.1			1,427.1			1,533.8			1,698.0
Private equity and venture capital funds		16.2			16.2			20.2			20.2
Total	$	1,747.6		$	1,747.6		$	1,863.1		$	2,092.5
Employee count		652			652			700			707

FBR CAPITAL MARKETS CORPORATION Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited)

	For the
	year ended
	December 31, 2007			Q-4 07			Q-3 07			Q-2 07			Q-1 07
Revenues
Investment banking:
Capital raising	$	289,545		$	25,646		$	49,691		$	116,972		$	97,236
Advisory		34,063			4,973			16,480			6,152			6,458
Institutional brokerage:
Principal transactions		10,152			2,996			968			4,152			2,036
Agency commissions		104,633			26,112			26,219			28,526			23,776
Asset management:
Base management fees		23,549			5,542			6,119			6,360			5,528
Incentive allocations and fees		401			99			82			116			104
Interest		25,760			3,625			5,223			5,798			11,114
Net investment (loss) income		(4,497	)		(8,703	)		1,493			1,218			1,495
Other		1,290			536			213			465			76
Total revenues		484,896			60,826			106,488			169,759			147,823
Interest expense		5,337			85			316			274			4,662
Revenues, net of interest expense		479,559			60,741			106,172			169,485			143,161
Non-interest expenses
Compensation and benefits		287,752			53,049			67,035			89,877			77,791
Professional services		45,303			12,598			9,195			12,686			10,824
Business development		37,356			9,806			6,304			9,931			11,315
Clearing and brokerage fees		12,373			2,774			3,911			3,022			2,666
Occupancy and equipment		33,197			9,217			8,671			7,816			7,493
Communications		22,434			5,503			5,717			5,805			5,409
Other operating expenses		15,868			7,034			3,308			3,706			1,820
Total non-interest expenses		454,283			99,981			104,141			132,843			117,318
Income (loss) before income taxes		25,276			(39,240	)		2,031			36,642			25,843
Income tax provision (benefit)		20,032			(11,451	)		1,764			14,882			14,837
Net income (loss)	$	5,244		$	(27,789	)	$	267		$	21,760		$	11,006
Net income (loss) before income taxes as a percentage of net revenue		5.3	%		-64.6	%		1.9	%		21.6	%		18.1	%
ROE (annualized)		1.1	%		-22.4	%		0.2	%		17.2	%		8.9	%
Total shareholders' equity	$	506,740		$	506,740		$	527,045		$	528,341		$	501,858
Basic earnings (loss) per share	$	0.08		$	(0.43	)	$	-		$	0.34		$	0.17
Diluted earnings (loss) per share	$	0.08		$	(0.43	)	$	-		$	0.34		$	0.17
Ending shares outstanding (in thousands)		64,059			64,059			63,889			64,411			64,282
Book value per share	$	7.91		$	7.91		$	8.25		$	8.20		$	7.81
Gross assets under management (in millions)
Managed accounts	$	347.1		$	347.1		$	345.6		$	291.3		$	258.8
Hedge & offshore funds		52.1			52.1			61.7			61.7			67.1
Mutual funds		2,046.5			2,046.5			2,292.3			2,482.6			2,412.9
Private equity and venture capital funds		23.8			23.8			31.3			33.8			41.2
Total	$	2,469.5		$	2,469.5		$	2,730.9		$	2,869.4		$	2,780.0
Net assets under management (in millions)
Managed accounts	$	347.1		$	347.1		$	345.6		$	291.3		$	258.8
Hedge & offshore funds		50.7			50.7			58.1			58.1			62.5
Mutual funds		2,034.6			2,034.6			2,285.1			2,474.7			2,406.4
Private equity and venture capital funds		22.6			22.6			29.8			32.0			38.0
Total	$	2,455.0		$	2,455.0		$	2,718.6		$	2,856.1		$	2,765.7
Employee count		758			758			765			745			751

FBR CAPITAL MARKETS CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited)

ASSETS	30-Sep-08			31-Dec-07
Cash and cash equivalents	$	144,969		$	383,558
Receivables		47,959			30,923
Investments:
Mortgage-backed securities, at fair value		850,911			-
Long-term investments		65,706			84,076
Trading securities, at fair value		25,092			19,057
Due from clearing broker		17,168			-
Derivative assets, at fair value		3,405			-
Intangible assets, net		9,372			9,837
Furniture, equipment and leasehold improvements, net		25,996			29,092
Prepaid expenses and other assets		47,306			52,189
Total assets	$	1,237,884		$	608,732
LIABILITIES AND SHAREHOLDERS ’ EQUITY
Liabilities:
Trading account securities sold but not yet purchased, at fair value	$	4,601		$	206
Repurchase agreements		701,718			-
Accrued compensation and benefits		35,950			45,432
Accounts payable, accrued expenses and other liabilities		42,384			48,778
Due to clearing broker		-			7,512
Due to affiliates		743			64
Total liabilities		785,396			101,992
Shareholders' equity:
Common stock		67			66
Additional paid-in capital		428,277			412,805
Restricted stock units		3,934			-
Accumulated other comprehensive (loss) income, net of taxes		(9,054	)		622
Retained earnings		29,264			93,247
Total shareholders' equity		452,488			506,740
Total liabilities and shareholders' equity	$	1,237,884		$	608,732