Contacts:
Friedman, Billings, Ramsey Group, Inc.
Investors: Kurt Harrington 703-312-9647 or kharrington@fbr.com
Media: Lauren Burk 703-469-1004 or lburk@fbr.com
FBR to Reposition Existing MBS Portfolio and Take Q4 Non-Cash Charge
Action to Improve 2006 and 2007 Earnings Outlook
Non-Cash Charge Will Not Impact Dividends
ARLINGTON, Va., December 21, 2005 - Friedman, Billings, Ramsey Group, Inc.
(NYSE: FBR) today announced that it will reposition its mortgage-backed
securities ("MBS") portfolio, a move which will involve the sale of some portion
of the existing portfolio beginning in the first quarter of 2006. This decision
was influenced by, among other things, the continuation of short-term rate
increases by the Federal Reserve Board and the associated flattening of the
yield curve, both of which have created a negative spread in the MBS portfolio.
Repositioning this portfolio will allow FBR to achieve higher returns on its
capital than the company would otherwise, and will meaningfully improve its
earnings for 2006 and 2007. This repositioning marks a change in the company's
intent to hold securities in its MBS portfolio that have unrealized loss
positions until a recovery of fair value occurs. Consequently, FBR has made a
determination that the unrealized losses in the portfolio as of December 31,
2005 will be considered "other than temporary" impairments under the Statement
of Financial Accounting Standards (SFAS) 115.
In connection with the repositioning of its MBS portfolio, FBR expects to record
a non-cash charge to fourth quarter 2005 pre-tax earnings, net of hedging
activities, of approximately $185 million. The exact amount of the non-cash
charge will be determined based on year-end fair values of the individual
securities in the MBS portfolio. $157 million of the expected approximately $185
million charge was reflected in the company's book value of $8.21 as of
September 30, 2005 as Accumulated Other Comprehensive Loss (AOCL). The amount of
the expected charge in excess of this $157 million would have been reflected in
FBR's book value at December 31, 2005 as AOCL even if the company had not
elected to reposition its MBS portfolio.
In addition, in connection with the preparation of its year-end financial
statements and its evaluation of its merchant banking equity investments, FBR
may conclude that other than temporary impairment charges are warranted with
respect to certain unrealized losses in its merchant banking equity portfolio.
If the company were to conclude that other than temporary impairments have
occurred, the actual amount of any charges would be determined based on the
year-end fair values of the applicable equity securities in the portfolio.
Eric F. Billings, Chairman and CEO of FBR, said, "After careful consideration,
we determined it was now prudent to eliminate the negative spread in the MBS
portfolio and take steps to maximize the return on the company's capital
invested in this business. We believe this action will meaningfully improve our
financial results in 2006 and beyond."
He continued: "This is the right action to put us on a better footing for the
future, and to put a tough 2005 behind us. Our investment banking and
institutional brokerage businesses have been growing market share and performing
very well, but pressures in our mortgage-related businesses have been
overshadowing that performance. I am optimistic that we will now be able to
enter 2006 in a position to maximize earnings and our dividend paying capacity."
The company will host a conference call to discuss this announcement today,
Wednesday, December 21, 2005, at 5:00 p.m. U.S. EST. Investors wishing to listen
to the conference call may do so via the web at:
http://phx.corporate-ir.net/phoenix.zhtml?c=71352&p=irol-irhome.
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Replays of the webcast will be available shortly after the call.
Friedman, Billings, Ramsey Group, Inc. provides investment banking*,
institutional brokerage*, asset management, and private client services through
its operating subsidiaries and invests in mortgage-related assets and merchant
banking opportunities. FBR focuses capital and financial expertise on eight
industry sectors: consumer, diversified industrials, energy and natural
resources, financial institutions, healthcare, insurance, real estate, and
technology, media and telecommunications. FBR is headquartered in the
Washington, D.C. metropolitan area with offices in Arlington, Va., Bethesda,
Md., Boston, Cleveland, Dallas, Denver, Houston, Irvine, London, New York,
Phoenix, San Francisco and Seattle. Friedman, Billings, Ramsey Group, Inc. is
the parent company of First NLC Financial Services, Inc., a non-conforming
residential mortgage originator headquartered in Deerfield Beach, Florida. For
more information, see http://www.fbr.com.
*Friedman, Billings, Ramsey & Co., Inc.
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 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. These and
other risks are described in the company's Annual Report and Form 10-K and
quarterly reports on Form 10-Q that are available from the company and from the
SEC.