Friedman, Billings, Ramsey Group, Inc. said Friday that it will suspend its fourth quarter dividend as it doubles its share repurchase program to 100 million shares, in an effort to boost its flagging stock price. From the press statement:
... the Board continues to believe that FBR's stock price does not accurately reflect the underlying value of the Company, including its majority ownership interest in FBR Capital Markets Corporation ... one of the Company's taxable-REIT subsidiaries that owns the Company's investment banking, institutional sales and brokerage and asset management businesses. The Board concluded that, at this time, the most prudent use of FBR's financial resources is to repurchase additional shares of Class A common stock in open market repurchase transactions, privately negotiated purchases, a possible tender offer or through other available methods, based on the belief that the Class A common stock is undervalued and that purchasing shares is an attractive and prudent investment for the Company.
FBR also said it had completed a sale of its $3.1 billion on-balance sheet securitized loan portfolio, eliminating the company's exposure to future market valuation adjustments. FBR said the sale will not have a material impact on fourth quarter results. Patrick over at the Mortgage REIT Journal suggests that FBR may be looking to ditch its REIT structure:
The sale will insulate FBR from recognizing mark-to-market losses on the residual interests (since the liabilities cannot currently be marked down simultaneously until FAS 159 is adopted), but it does raise the question of how FBR will satisfy the REIT qualification tests going forward. I suspect that FBR may be considering a conversion transaction to a partnership (similar to KKR Financial) to allow it to diversify its business activities outside of the sagging real estate market. Given that the capital markets segment (a TRS) is the only profitable segment for FBR right now, the REIT structure doesn't appear to be providing the maximum benefit to the Company.
The firm also said that it held approximately $200 million of non-securitized subprime mortgage loans as well at the end of September, net of reserves. Of this, $153 million has since been sold, FBR said, at a loss of $18 million; the remaining $48 million, currently in the process of being sold, will generate an additional loss of $20 million. This is relevant -- because, extrapolating the numbers, subprime whole loans would appear to be going for roughly 53 cents on the dollar.