B. Riley Financial Inc. made some cutbacks to FBR's financial institutions group after acquiring the company in June 2017, but now the team is looking to add talent.
Soon after B. Riley closed its acquisition of FBR, the buyer moved to take out cost from the target, and the impact was felt in many different departments, including FIG. The FIG team's transition was still underway in 2018 with the departure of Bob Brown, who had been with FBR since 2009 and at one time was head of depository coverage.
But FIG has always been an important vertical at FBR, and B. Riley Chairman and CEO Bryant Riley wants to maintain that reputation, said Ajay Asija, who is head of depository investment banking coverage at B. Riley FBR Inc. "That's why he's given me the mandate to grow the business," Asija said in an interview.
Asija noted that the company is looking to add depository and specialty finance investment bankers to the FIG team. On the depository side, the company is most interested in adding coverage of markets on the West Coast and in the Southwest, including Texas, Asija said. He added that in specialty finance, the plan is to add coverage that has some synergies with the depository effort.
The i-bankers who join might have to get used to a different compensation structure. Typically, investment bankers receive a significant portion of their pay in an annual bonus. However, the senior bankers at B. Riley FBR receive payouts for the revenue they generate soon after deals are completed.
"Usually, you're paid the month after the transaction closes," Asija said.
The model can make it more challenging for one department to subsidize others. But smaller investment banks can use this sort of pay structure in an effort to create an entrepreneurial-type environment that can help entice more experienced professionals, said Richard Lipstein, managing director in the financial services practice for the recruiting firm Gilbert Tweed International.
"It's often used by firms to attract more senior professionals who want to be paid for what they do," Lipstein said in an interview.
Riley believes improving revenue production per employee will help fairly compensate and retain key producers, he said during a November 2017 conference call, according to a transcript. He added that in the third quarter of 2017, FBR's investment banking business produced annualized average fees of $1.9 million per calling officer and $1 million per investment banking employee, up from $1.2 million in fees per calling officer and $560,000 per investment banking employee in 2016.
He noted that headcount reduction helped improve the production-per-employee metric. After the acquisition, FBR's headcount dropped by about 30%, to 156 in September 2017 from 229 in May 2017, he said.
But B. Riley has done more than reduce staff. It has also become more efficient by integrating the various parts of FBR's business, Asija said. For instance, FBR has a small-business investment company funds placement group, and now that team is working more closely with the investment bank's depository clients, Asija said.
He added that the FIG team is collaborating more with the at-the-market business, an offering FBR significantly expanded with the 2015 acquisition of MLV & Co. LLC. "Sometimes it might make sense for capital markets to take the lead in driving the conversation with financial institutions clients," Asija said.
He added that B. Riley has provided resources to help the FIG team on deals. For example, the company invested some capital into Infinity Bank in a de novo deal that B. Riley FBR recently helped execute.
The FIG team is also finding ways to work with Wunderlich Securities Inc., which B. Riley purchased in 2017. Asija noted that Wunderlich has a fixed-income business that can provide brokered certificates of deposits to banks. Also, Wunderlich's financial adviser network can help with the placement of common stock, preferred shares and debt offerings, Asija said.
Even though the FBR investment banking team has been thinned out, those who remain have access to greater resources now that they are on the same platform as B. Riley and Wunderlich.
"We dramatically increased the size of the firm," Asija said.
