FBR Capital Markets is shuttering its prime brokerage unit, which the firm opened just 16 months ago, according to people with knowledge of the matter who were not authorized to speak publicly.
FBR had high hopes for the modest-size business, which started in August 2009. The company heavily recruited senior talent from Shoreline Trading, a Los Angeles-based firm, including Michael J. Murray and Matthew W. Ventura, who were brought on as managing directors. The unit was a “mini” prime brokerage operation, mainly servicing the trades of small hedge funds.
In the wake of the financial crisis, some of the largest prime brokerage firms dropped their smallest clients. According to analysts, FBR opened its prime brokerage unit to take advantage of the turnover. But they said it struggled to find traction and significant scale in the market.
“The prime brokerage industry is very competitive, especially for prime brokers, like FBR, who service smaller and midsized hedge funds,” said Josh Galper, a managing principal at the Finadium Group, who expects more consolidation in this space.
FBR declined to comment on the closing of its prime brokerage unit.
According to Mr. Galper, hedge funds have also used less leverage in the last two years, resulting in fewer trades and profits for prime brokerage firms.
The silver lining, says Devin Ryan, an analyst with Sandler O’Neill, is the unit never became a significant business, so its disappearance will barely dent the company’s bottom line. The majority of FBR’s revenue comes from its investment banking and sales and trading businesses.
“Ultimately for them, it’s so small it doesn’t move the needle in a major way, it wasn’t something that was generating significant revenues,” Mr. Ryan said. “FBR quickly figured out, it wasn’t going to be a meaningful driver.”
