FBR CEO sees deals for small investment banks

Richard Hendrix, President & Chief Executive Officer of FBR Capital Markets, speaks during the Reuters Future Face of Finance Summit in New York March 2, 2011.

NEW YORK (Reuters) - FBR Capital Markets FBCM.O expects buyouts of mid-sized broker-dealers as some of the large domestic and international banks look to build out a full suite of investment banking offerings, Chief Executive Richard Hendrix said on Wednesday.

Large banks such as US Bancorp (USB.N) and PNC Financial Services Group Inc (PNC.N) do not have full broker-dealer operations and could look to buy to fill gaps in their businesses as they compete with the likes of Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N), Hendrix said.

"It will be important for them to fully compete and neither one of them have a full broker-dealer operation," Hendrix told the Reuters Future Face of Finance Summit in New York.

"Now, they each have pieces of it and they may choose to just build on what they have as opposed to doing things from a consolidation standpoint," Hendrix said. "But both domestically and internationally there are firms that probably want that kind of exposure in the U.S."

FBR, an Arlington, Virginia-based investment bank that focuses on mid-sized clients, has been dealing with a big handicap as large banks increasingly use their ability to lend to get investment banking business from clients, Hendrix said.

"The largest firms today compete more aggressively than ever for capital markets and advisory business with their ability and willingness to lend," Hendrix said.

FBR is weighing ways to create partnerships or off-balance sheet vehicles that could help it provide credit to clients and level that playing field somewhat, Hendrix said.

Other firms have tried such structures with some success.

Late last month Jefferies Group Inc (JEF.N) and Massachusetts Mutual Life Insurance Co doubled their equity commitments to Jefferies Finance, a commercial finance joint venture the two firms started in October 2004. Jefferies Finance provides senior loans to companies, originated primarily through Jefferies' investment banking business.

"We are actively exploring some of those types of ideas currently," Hendrix said. "It will help at the margin. It's not going to overcome what is a big, big structural difference between the biggest banks and the mid-sized banks."

Nothing is imminent, Hendrix said. But he added that he would "like to see us have at least a move in that direction accomplished in 2011."

CAPITAL DEPLOYMENT

Hendrix, who took over as CEO in January 2009, has been slashing costs at the investment bank, which has a market value of about $230 million.

Hendrix said he has reduced the headcount to 475 from a peak of almost 800 in 2007, while adding new businesses to offer a broader range of services to clients.

With the financial crisis behind it, Hendrix is looking to deploy the firm's more than $200 million in liquid assets in short-term investments through the trading desks as well as long-term use to support operations, such as alongside its real estate investment banking business.

"If we have $200 million of liquidity today, and we expect it to grow through earnings retention throughout the year, half of that should be more fully invested," Hendrix said. "I expect that we'll do more of that in 2011."

(Reporting by Paritosh Bansal; Editing by Tim Dobbyn)