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RMBS Unit Shuddered

RMBS Unit Shuddered

Friedman, Billings Ramsey restructuring

October 4, 2006

By PATRICK CROWLEY

photo of Patrick Crowley
A prominent investment banker will stop underwriting mortgage-backed securities as part of a broader restructuring plan.Friedman, Billings, Ramsey Group Inc. is closing its mortgage bond unit, company spokeswoman Lauren Burk confirmed to MortgageDaily.com.

Burk said the number of employees at the Arlington, Va.,-based company who will be affected by the closure has not been determined. An undetermined number of employees will be moved to other areas of the company, she said.

“It’s a very small part of our business,” Burk said in an interview. “It was a non-core, non-material part of our business both people and revenue.”

The move comes after Friedman lost $170.9 million from writing down its mortgage portfolio value to fair value last year. Burk confirmed the loss but did not comment further.

The closing of the unit also comes amid a major restructuring of the firm, which says it had $1 billion in revenue in 2005.

In June Crestview Partners, a private equity firm run by Goldman Sachs, took a stake in Friedman with a $100 million investment. Friedman then split into two distinct operating businesses. A Real Estate Investment Trust, or REIT, that includes the company’s capital markets operations and investment banking business and a mortgage-backed securities unit that includes the mortgage bond unit as well as portfolio management for wealthy clients.

But earlier this year Friedman struck a deal for its entire mortgage-backed securities portfolio for about $7 billion.

Just two years ago, company chief Eric Billings was on a campaign for the REIT-ization of the subprime sector — encouraging lenders to hold on to their portfolios.

While selling the loans can generate respectable one-time earnings, “maybe its a point after tax” that lenders holding on to loans in a spread-based structure can double or triple their return on those same loans, Billings told attendees of a Lake Tahoe, Nev., home equity conference in August 2004. “The economic value is extraordinary in every way.”

The company went through tumultuous times last year after cofounder Emmanuel Friedman resigned during a Securities and Exchange Commission investigation into the firm’s dealings with a hedge fund manager who had been indicted for securities fraud.

Friedman is publicly held and traded on the New York Stock Exchange.


Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: PatCrowley@MortgageDaily.com

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