EXHIBIT 99.1
Third Quarter 2003
Friedman, Billings, Ramsey Group, Inc.
Earnings Conference Call Transcript
Wednesday, October 29, 2003
KURT HARRINGTON:
Good Morning. This is Kurt Harrington, Chief Financial Officer of Friedman,
Billings, Ramsey Group, Inc.
Before we begin this morning's earnings call, I would like to remind
everyone that statements 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. These
forward-looking statements 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, our cost of borrowing, interest spreads,
mortgage prepayment speeds, the 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. Additional information concerning
these factors that could cause results to differ materially is contained in FBR
Group's Annual Report on Form 10-K and quarterly reports on Form 10-Q.
I would now like to turn over the call to FBR Group's Co-Chairmen and
Co-Chief Executive Officers, Emanuel Friedman and Eric Billings. Also joining us
this morning are Robert Smith, FBR's Chief Operating Officer, Rock Tonkel, Head
of Investment Banking and Rick Hendrix, Chief Investment Officer.
MANNY FRIEDMAN:
Thank you and good morning. Last night we announced our September quarter
results. This was our second quarter following our recent merger. After-tax
earnings were $57.0 million or $0.41 per share compared to $15.1 million or
$0.31 per share in the third quarter last year. Excluding the impact of the
non-cash amortization of the mark-to-market step up in our MBS portfolio from
the merger, which we will refer to as "Merger Amortization" which reduced income
by $0.07 per share, and dividends on shares pledged by certain employees to the
company as collateral for incentive stock purchase loans which are accounted for
as compensation expense, totaling $0.02 per share, we would have earned an
additional $0.09 per share or $0.50 per fully diluted share in total.
The third quarter results were a good demonstration of the growth in our
capital markets and asset management businesses and the resiliency of our MBS
business, exhibiting combined strength of our franchise and business model.
We were particularly pleased with the performance of our MBS portfolio this
quarter given the uniquely challenging environment. During the third quarter,
historically high prepayment speeds coupled with equally unusual interest rate
volatility created difficulty with many MBS portfolios. However, our low
duration and low leverage combined to insulate us from these extremes. Through
this period we maintained our invested assets, allowing us to maintain our
target portfolio and provide an acceptable return on equity despite the pressure
on yields from rapid amortization. Already in October, CPR's have begun to fall,
allowing our net interest spread to begin to widen to more historical levels.
The FBR capital markets and asset management franchise continued to grow
market share and maintain its profitable business model. We reported investment
banking revenues of $90.2 million in the third quarter versus $58.9 million in
the third quarter 2002, a 53% increase. During the period, FBR completed 11
lead-managed equity offerings totaling $1.9 billion * plus $200 million of
lead-managed fixed income offerings. For the first nine months of 2003
investment banking revenues were $150.8 million, a 26% increase over the $119.6
million in revenues in the first nine months of 2002. Since the end of the third
quarter, investment banking has completed six lead-managed equity offerings
totaling $1.2 billion while at the same time growing the investment banking
pipeline.
Institutional brokerage revenues have continued to show significant growth
despite a consistent reduction in spreads throughout the securities industry.
Brokerage revenue for the quarter of $19.7 million exceeded revenue during the
same quarter last year by 37%. We believe that in addition to growing market
share in both the investment banking and institutional brokerage businesses, in
the future institutional brokerage revenues will grow at a faster rate as its
market share becomes more comparable with that of investment banking.
Asset management revenues were $7.2 million for the third quarter with net
assets under management growing 28% from September 30, 2002, excluding FBR
Asset.
In addition to the continued growth of each of our operating businesses,
FBR completed several strategic initiatives during the third quarter. In July we
added a team of asset backed securities bankers providing FBR with its first
entry into the structured finance fixed-income business. This group will focus
on the securitization of non-prime mortgage assets. This is an industry where
FBR maintains a leadership position in equity underwriting and has extensive
issuer relationships. Also during the quarter, FBR established a $5 billion
A1+/P1 rated asset-backed commercial paper vehicle called Georgetown Funding
which has strengthened and diversified our funding sources for our agency-backed
MBS portfolio. Most significantly in the first week of October, we raised $430
million net proceeds of new equity capital at $17.00 a share, taking our total
equity to $1.5 billion or $9.21 per share pro-forma and our market
capitalization to $3.0 billion.
Our overall third quarter performance was driven by the combined strength
of our $8 billion dollar balance sheet, the strength of our merchant banking
portfolio, the FBR investment banking platform, our continued penetration of
major institutional brokerage accounts, expansion of our research offerings and
ability to trade for our customers, the growth of assets under management, and
our expense discipline. Most importantly, we continued to see the intangible
benefits of our merger as we grow our client relationships both in scope and in
number.
Now I would like to hand the call over to Eric Billings who will discuss
our results in more detail and our outlook for the future.
ERIC BILLINGS:
Thanks Manny.
Before we go through the detail of our five profit centers, I would like to
reiterate our perspective on how we are building our business. First, we
evaluate investments based on an analysis of intrinsic value of businesses with
a strong an emphasis on appropriate capital structures. We use this same
discipline as the basis for our underwriting and capital markets commitment
process, our research and trading recommendations, and all other facets of our
business.
It is our belief that this approach is responsible for a wide range of
track records within FBR:
1. The aftermarket performance of all of our public equity offerings over the
last five years which ranks #1 among all major underwriters.
2. The historical annualized performance of our merchant banking portfolio
which has returned an unleveraged 31% since its inception in 1997.
3. The performance and rating of our five FBR equity mutual funds, three of
which are ranked five star by Morningstar, one of which is ranked four star
and the last which is not yet rated.
We believe that through this type of disciplined analysis in all of our
business lines and maintaining a disciplined expense structure, we will continue
to expand our franchise and create additional wealth for our shareholders.
Our capital markets franchise continues to reflect the results of this
discipline. We finished the first nine months of the year as the #3 lead manager
of IPO's, and the #1 performing major underwriter as measured by the
after-market performance of our lead underwritten equity transactions during the
first nine months of this year, continuing our five year track record mentioned
earlier. As you may recall, during our first quarter conference call we
described an investment banking pipeline that totaled approximately $3.5 billion
in lead managed business. In the second quarter we completed $1.1 billion in
lead managed capital raises and continued to have a backlog in excess of our
previous $3.5 billion. In the third quarter we underwrote a total of $2.1
billion, and currently have a backlog even greater than the first and second
quarters of approximately $5.0 billion. Investment banking revenues in the third
quarter exceeded $90 million, our best quarter as a public company, and we
currently anticipate that the fourth quarter investment banking revenue should
approximate or exceed that number. As mentioned we have already closed six
transactions for $1.2 billion in the fourth quarter. For the first nine months
of the year we have already generated investment banking revenues of $150
million, meeting our original full year target, with a quarter remaining.
This success and our strong outlook going forward can be attributed to
several factors. Clearly, the intangible benefits of our merger as well as our
greater capital base, resources, and visibility, result in a greater credibility
and opportunities with issuers and investors. Our industry-leading track record
is beginning to be recognized and understood, resulting in deeper relationships
with institutional investors and more engagements with investment banking
clients.
Our unique franchise and the increased resources of our combined company
have come together to elevate our business to the point where we can
realistically expect that both our investment banking and institutional
brokerage businesses will continue to achieve increases in market share for the
foreseeable future. As an example, our capital markets and institutional
brokerage businesses have achieved compounded annual growth rates since 1999 of
42.3% and 16.2% respectively. This has been achieved despite a general lack of
recognition within our markets of the capabilities and strengths of our
franchise. We are optimistic that as we begin to achieve greater franchise
recognition throughout corporate America, which we believe to date has little
awareness of FBR, we will be able to continue our historic growth rates for many
years into the future.
Turning to our balance sheet businesses, I would like first to address our
MBS strategy. As Manny mentioned, we were very pleased with the performance of
this part of our business given our ability to maintain a very acceptable return
on equity in a very challenging third quarter environment. As of September 30,
our total MBS assets were approximately $8.0 billion. We have now purchased
securities that would take the portfolio to approximately $10.3 billion at year
end. Preservation of capital is our guiding principal, and like our other
businesses we focus on an appropriate capital structure which means low leverage
and an intrinsic value approach to the risks we take.
Our MBS portfolio continues to exhibit the following strengths:
1. Exceptionally high credit quality based on the guarantees of the US
Government and government sponsored entities.
2. Low leverage of 8.6 to 1 for the Company as a whole.
3. A focus on acquiring assets with low dollar premiums. Our current portfolio
averages 1.95% premium net of the merger step-up.
4. Minimal interest rate risk in the form of all adjustable rate securities
and measured by a very low duration of .93 at September 30th.
We manage our funding by:
1. Maintaining multiple counterparties to diversify our funding resources.
During the third quarter we launched our own A1+/P1 asset-backed commercial
paper conduit, called Georgetown Funding, to add a new source of funding:
We currently are funding $4.0 billion of our borrowings through that
vehicle.
2. Holding high quality assets that can be financed in varying market
environments. During the third quarter we saw the advantages of this
approach, and we were able to finance through the interest rate increase
and very rapid prepayments while maintaining our asset balance.
3. At appropriate times, hedging our interest rate exposure by locking in
funding costs for terms of one year or greater. We currently have $2.5
billion of our financing hedged with 12 month interest rate swaps expiring
October 2004. We are likely to increase our hedging exposure during the 4th
quarter.
Our mortgage-backed securities portfolio asset yield was 2.37% for the
quarter. This yield was impacted by both the Merger Amortization and the
historically high pre-payments as measured by the constant pre-payment rate or
CPR which peaked at 46 CPR during the quarter. The company's weighted average
cost of financing for the portfolio was 1.12%, including the cost of hedging.
The resulting net interest spread for the quarter excluding the Merger
Amortization step-up was 1.69% for the quarter. A 1.69% net interest spread
results in a return on equity approximately equal to 20% using the third quarter
leverage ratio. This demonstrated the resiliency of the company's
mortgage-backed security business given the extreme conditions of the third
quarter.
We expect to deploy approximately $350 million of the new equity that
we raised in October in the MBS strategy. Full leverage of that capital and the
impact of falling prepayment speeds, the October CPR was already down to 38,
leads us to be very optimistic about the outlook for a more normalized
contribution to earnings and dividends from the MBS strategy in the fourth
quarter and during 2004.
For our Merchant banking Investments, in addition to an intrinsic value
and capital structure analysis we measure every merchant banking investment
continuously against the returns we achieve in the mortgage backed securities
portfolio on a risk adjusted basis. Thus, we expect the long term performance of
this portfolio to exceed returns in the MBS strategy, although realized results
will vary from quarter to quarter. This is illustrated in the year-to-date
performance, in which we realized no gains in the first quarter, but realized
$13.9 million in the third quarter, and $24.4 million in the first nine months
of the year. As we have previously stated, we do not leverage the investments in
the merchant banking portfolio.
FBR's merchant banking portfolio and other long term investments
totaled $254.8 million, or approximately 24% of the company's equity, at the end
of the quarter. We intend to deploy approximately $100 million of the new equity
into the merchant banking portfolio. In fact, we have already approved $55
million in new investments to be funded in the 4th quarter. We believe there are
opportunities far exceeding our funding capability to invest in transactions in
keeping with our strategy and are therefore optimistic about our ability to
continue our outstanding record in this area. Additionally, the company had
unrealized gains in the merchant banking portfolio of $50.8 million at September
30.
As a result of the strength in our business year-to-date, and the new
$430 million of capital raised in October, plus the new funding flexibility of
our Georgetown Funding $5 billion commercial conduit program, we believe that
the outlook for 2004 includes the opportunity for both increased profitability
and dividends.
Specifically, our company's model for 2004 indicates to us that we can
achieve investment banking revenues of $250 million and institutional brokerage
revenues of $80 million, while maintaining a breakeven revenue level of $130
million for those businesses combined, and an after-tax contribution of 25%
beyond that breakeven, we would generate $50 million of after-tax earnings in
that business next year. As we complete our planning process, we may increase
our investment in those businesses to achieve even higher revenues and
profitability, even with potentially higher breakeven levels.
In Asset Management, our model contemplates revenues of $30 million
against our current cost structure which will generate approximately $8 million
in pre-tax, and $5 million after-tax profits.
In the MBS portfolio, you can make your own assumptions as to CPR's and
spreads. Using an assumption of 220 basis points spread between our yield and
cost of funds - the 20 year average - $10.45 billion of assts against $1.1
billion of equity (9.5:1 debt to equity) in this portion of our company, would
generate gross returns of approximately $268 million, or more than $241 in
earnings after expenses.
Lastly, with fully deployed equity of $350 million in our merchant
banking investments, and assuming 20% realized return (less than our target rate
of return over time), we would generate $70 million, or $63 million after
expenses (including performance-related bonuses) in our model.
Taking all of this together, this model would suggest earnings of more
than $355 million, or $2.15 per share on 165 million shares, of which
approximately $300 million would be REIT earnings that would be distributable to
our shareholders. Now these numbers are not intended to be a projection, but it
is a model we use in thinking about our business.
Lastly, I would also like to mention another great step forward in our
marketing and brand building. As you know, during the second quarter we
initiated a national advertising campaign, and became the title sponsor of the
local PGA Tour event in the Washington, DC area, the 2003 FBR Capital Open. The
impact of these steps in building name recognition and brand awareness
nationally, and in garnering goodwill with our clients and prospects was
enormous. As a result, we have decided to become the title sponsor of one of the
highest-rated stops on the PGA Tour and the most attended golf tournament in the
world, known for over 60 years as the "Phoenix Open," which has now become the
"FBR Open". We are pleased to be partnered with the Thunderbirds - the volunteer
organization which sponsors the tournament - and to the Phoenix and Scottsdale,
Arizona communities, as well as the PGA Tour, and are looking to a successful
future for this tournament (which will be held January 26 - February 1st).
I would now like to open the call for any questions.
THE MODERATOR:
At this time, I would like to remind everyone, if you would like to ask
a question, please press star, then the number 1 on your telephone keypad. We'll
pause for just a moment to compile the Q and A roster.
Your first question comes from Harold Feingold of Raymond James and
Associates.
HOWARD FEINGOLD:
Hello, gentlemen. You had a fine quarter. Thank you.
When the merger was originally put together, it seems like the
contemplation was that the dividend policy was going to be based upon the
earnings of the mortgage portfolio with -- as returns from the brokerage and
merchant banking, shifting over to a form of decreased size of the mortgage
portfolio.
As your earnings components shift more towards the non-mortgage
portfolio, how is this going to impact your dividend policy?
ERIC BILLINGS:
First of all, your analysis is exactly correct. That is how we intend
to run the company. So, specifically, if you take the model that we just went
through on the phone, it would suggest that we would have approximately $50
million of after-tax profitability in calendar '04. We would intend to shift
that $50 million over to the spread-base side. If we continue to achieve the
average 220 basis point spread in that part of our business, it would allow us
to earn approximately 24 percent on that $50 million once transferred over to
the spread-base side, which would obviously result in an additional $12 million
in profitability. That $12 million would be paid out in the form of growing
dividends.
HOWARD FEINGOLD:
Okay. So it's still going to be based upon the net earnings of the
mortgage portfolio?
ERIC BILLINGS:
The REIT, that is correct.
HAROLD FEINGOLD:
That's my only question. Thank you, gentlemen. I do mean thank you.
ERIC BILLINGS:
Thank you.
THE MODERATOR:
Your next question comes from Richard Herr of KBW.
RICHARD HERR:
Hi, good morning. I just have several questions. I just wanted to start
off with, maybe you could just walk us through, give us a little color on the
success you had in investment banking this quarter, and also the -- I just want
to double check my numbers -- the $5 billion pipeline, and maybe give us a
little bit of the complexion of what's in that pipeline.
MANNY FRIEDMAN:
The success of the Investment Banking portfolio was very, very broad
transactions in Financial Services, which has been an historically strong area
for us; Real Estate, which is growing, especially in the hospitality area; and
Diversified Industries as one large transaction, and we're seeing a continued
strong pipeline in that area.
In Energy, we did do a very, very important transaction, a billion
three potential transaction. The first traunch was done in the third quarter,
and the rest of the transaction appears will be done in the fourth quarter. It
was a private, but it is the biggest transaction that the firm has ever done,
and it is having a very, very large impact on our Energy practice, and because
of the structure of the transaction, it's having an impact on other parts of our
business.
In Technology, we saw two transactions, two secondaries, and we're continuing to
see broad growth in that area. So there is strength across the board, and I'll
have Rock Tonkel, the head of Investment Banking, refer to the pipeline.
ROCK TONKEL:
We continue to see positive results from the effect of the merger and
the visibility of the company, the capital level and the track record that we
have built. As Manny said, it extends across the board. We have made great
strides in Insurance, which was an industry that we were not a meaningful
participant in just two years ago. We have made very strong strides in Energy,
and that continues to show up in the pipeline and grow in the pipeline.
Obviously, Specialty Finance and other areas of Financial Services are important
to us.
The Technology pipeline has grown significantly, and the Diversified
Industries pipeline has grown significantly.
We've become, I think, the leading factor in the lodging industry in
the real estate business, and so the real estate business across the board is
very strong in many different sub-industry sectors in the real estate business.
The capital market side of the business is extremely strong. The
pipeline is a nice blend of M&A business versus capital markets business. It's a
majority of capital markets business at this stage, but it's a very nice mix of
large capital offerings, as well as a good mix of M&A transactions, and it's
across the board.
RICHARD HERR:
Thank you. And to follow up, you speak about institutional brokerage
penetration. Could you maybe walk us through the steps of who you're hiring or
how you're going about penetrating the larger buy-side accounts?
ERIC BILLINGS:
By all means. First of all, we deployed a very specific strategy
starting three years ago where we simultaneously grew the amount of analysts we
have. We now have a total of 65 senior and associate analysts. Their requirement
is to cover a minimum of 15 companies each, where at least 5 would be large cap
companies. The effect of this, with the simultaneous growth and expansion of our
entire platform and growing name recognition, is allowing us to achieve the
results of our intended targeted approach to the 125 McLaughlin largest
accounts. That effect is allowing us to grow our institutional sales and trading
line at a very acceptable rate, north of 20 percent compounded over the last 5
years, despite the very difficult environment-versus-spread compression during
that time frame.
So that the effect of the greater amount of research, the type of
coverage that we have, the great, great track record we've been able to achieve
in all aspects of our business is allowing us to continue to grow this market
share, and we believe, given the size of our Investment Banking pipeline and
total level of revenues, that the proportionality of those two lines will
continue to not only grow at very acceptable rates, but secondary trading will
actually grow more rapidly because it needs to achieve a closer relationship to
the banking revenues which it doesn't quite have, so we are very optimistic
about the continued success of that business line.
RICHARD HERR:
Thank you.
LAUREN SMITH:
Hi, it's Lauren Smith. I'm here with Rich. Just a follow-up question on
the institutional side, more sort of like strategic and your thoughts on it.
Have you migrated your sales force at all to be sort of industry specific? I
mean, a lot of firms have really gone down that path, and I'm just curious about
your thoughts on that.
MANNY FRIEDMAN:
In a general way, we have our sales force divided into sections,
covering all the value stocks, and another group of sales force covers growth,
so to some extent, they are divided. We do want our sales force to understand
the ideas and to be able to sell the ideas. In many ways, we believe our sales
force is, at times, comparable to analysts, and we pride ourselves on that. We
think that's one of the great reasons for the success and the power of our
distribution platform.
LAUREN SMITH:
And just in terms of sort of where you are in head count, do you feel
you sort of achieved your capacity, if you will, or the size that you want to
be, and it's really now about looking out about kind of growing into the
infrastructure and people that you have in place at this time?
ERIC BILLINGS:
Well, Lauren, in fact, if you look at our head count, it actually
dropped from just over 500 to 479 people currently for the quarter, and that
reflects the bank, which, as you know, we changed from a depository bank to just
a trust charter bank, and allowed us to eliminate approximately 30 people, 35
people.
Having said that, we continue to achieve revenues and profitability per
capita that far, far exceeds we think all of our competitors in the business by
a very large margin. Lauren, we will grow our head count from here. Our internal
discipline is to constantly try to grow the head count at a slower rate than we
grow the total revenues and profitability. Clearly we've been able to achieve
that, and we think we can continue to achieve that in the future years.
It is, as Rock mentioned, a very, very good time to be hiring because
of the continued difficulty in the generally broad capital markets, so we
continue to see very talented people that we can build out internally certain of
our verticals, our industry focuses, and, as you know, we will have a consumer
products industry built and up and running by the first of the year, which we're
very excited about, and so we're able to bring in people from all over the
industry, and outside the industry, very opportunistically right now.
LAUREN SMITH:
Terrific. Thanks much.
THE MODERATOR:
At this time, I would like to remind everyone, if you would like to ask
a question, please press star, then the number 1 on your telephone keypad.
Your next question comes from Mark Patterson of NWQ Investment
Management.
MARK PATTERSON:
Hi. Congrats on a great quarter. Question on the MBS portfolio. I
didn't catch the first 20 minutes of the call, I believe you didn't cover this,
but did you say what your average portfolio was and the average funds held
against that so we can calculate the average leverage that you used during the
quarter?
RICK HENDRIX:
Sure, Mark. This is Rick. Our average assets for the quarter were $7.9
billion.
MARK PATTERSON:
I saw that one in the release.
RICK HENDRIX:
Right. I'm sorry, you wanted our average liability balance as well?
MARK PATTERSON:
Right. You guys break that up now obviously repo and CP.
RICK HENDRIX:
Right. We didn't start funding in the CP market until September, the
first week, but our average liabilities ran $7.3 billion in the quarter.
MARK PATTERSON:
Okay. And then absent all of the issues with the step-up, you guys have
talked about a yield that would be -- or, excuse me, a spread that would be
somewhere in the 170 range, is that what --
RICK HENDRIX:
169, right.
MARK PATTERSON:
Yeah. And currently has that viewpoint changed for Q4 given what's
happened to rates.
RICK HENDRIX:
Yes, it has. I mean, the good news for the portfolio is the CPRs have
begun to fall very quickly. We peaked in August at a 46 CPR for one month, and
the October CPR was 38, so actually our asset yields are trending up fairly
quickly and, therefore, spread is widening back to the point where it's
conceivable that it could be over 2 percent in the fourth quarter.
MARK PATTERSON:
Okay, great. And then one other question on the book value, X other
comprehensive income. I show that 6.30 balance it 7.67, and it looks like then
you did both the second quarter and the third quarter dividend at 34 cents?
RICK HENDRIX:
That's right.
MARK PATTERSON:
And then the third quarter earnings of $.041 takes you close to the
$7.44. Okay, I think I'm all right on that one.
RICK HENDRIX:
And, you know, we look at our earnings on a cash basis, Mark, which
would add back the merger amortization.
MARK PATTERSON:
Right. You're looking at a 50 cent quarter here.
RICK HENDRIX:
Yes.
MARK PATTERSON:
Yeah. Okay, great. Thanks.
RICK HENDRIX:
Thank you, Mark.
THE MODERATOR:
Your next question comes from John Race of Deprince, Race & Zollo.
JOHN RACE:
Yes, good morning, guys. Good quarter. I wanted to just touch base with
you on the -- Eric, based on your estimates or your guidance for '04, could we
sort of assume a dividend, based off that number, I'm calculating around $1.80.
Does that seem reasonable?
ERIC BILLINGS:
You know, John, again, let me say this. First, it's what I --
JOHN RACE:
I know, it's not guidance.
ERIC BILLINGS:
Exactly. It's a model, it's an internal model. As you know, we want to
provide everybody, all of our owners, an understanding of how our business
operates and the different parts of it so that everybody can input their own
assumptions and reach their own conclusions, but based on our model, your
assumption is correct, that would indicate approximately a $1.80 dividend. And
to the degree that next year does end up as that model would suggest, we would
intend to continue our dividend policy of 34 cents a quarter, and then pay out
probably two special dividends during the year to equate to the difference
because, clearly, we will pay out, as we said earlier, all of the REIT earnings
in the form of dividends.
JOHN RACE:
Okay, good. And, Eric, did you give any model for the fourth quarter of
this year?
ERIC BILLINGS:
We didn't give a specific model, but we did indicate that we believe
our Investment Banking business should approximate or exceed the third quarter
numbers, and we have indicated that our institutional sales trading continues to
grow.
The month of October looks like Sales and Trading will annualize at
north of $100 million of annualized revenues. Having said that, obviously,
November and December are generally affected by the holiday season, so you don't
necessarily want to take that out for the whole quarter, but clearly the
revenues there continue to grow at a very acceptable rate.
Our breakeven in Sales and Trading continues to run less than $63
million annualized. We make 22 percent after tax on every dollar above that.
Investment Banking continues to run at approximately $55 million of annualized
breakeven, and we make 27 percent after tax on every dollar above that.
So you can apply those revenues and use those numbers and create your
matrix and come to I think a pretty clear indication as to what our
profitability is likely to be. And, of course, markets are volatile, and that
assumes that we don't have any meaningful change in the market that would cause
these numbers to be different.
JOHN RACE:
And, Eric, do you envision any charges, any non-cash charges, in the
fourth quarter?
ERIC BILLINGS:
No, we don't at this time, John.
JOHN RACE:
Well, thank you, gentlemen. Great quarter.
ERIC BILLINGS:
Thanks.
THE MODERATOR:
There is a follow-up question from Richard Herr of KBW.
RICHARD HERR:
Thank you. All my questions have been answered.
THE MODERATOR:
At this time, there are no further questions. Are there any closing
remarks?
MANNY FRIEDMAN:
No. We thank everybody for participating, and we look forward to the
next quarter.
ERIC BILLINGS:
And we look forward to seeing you all at the new FBR Open the last week
in January. Thanks very much.
THE MODERATOR:
This concludes today's conference call. You may now disconnect.