I really enjoyed this article. Its a 10 minute read, but gives some insights in a person thriving right now in the very industry that's floundering.
--------------------------------------------------------
Forbes.com said:
The Banker Who Said No
Bernard Condon and Nathan Vardi 04.03.09, 5:00 PM ET
Standing outside the glass-domed headquarters of his Plano, Texas, bank in March, D. Andrew Beal presses a cellphone to his ear. He's discussing a deal to buy mortgage securities. In just a few minutes, the deal's done: His Beal Bank will buy $15 million of face value for $5 million. A few hours earlier he reviewed details on a $500 million loan his bank is making to a company heading into bankruptcy--the biggest he's ever done. A few floors above, workers are bent over computer screens preparing bids for chunks of $600 million in assets dumped by two imploded financial firms. In the last 15 months, Beal has purchased $800 million of loans from failed banks, probably more than anyone else.
Andy Beal, a 56-year-old, poker-playing college dropout, is a one-man toxic-asset eater--without a shred of government assistance. Beal plays his cards patiently. For three long years, from 2004 to 2007, he virtually stopped making or buying loans. While the credit markets were roaring and lenders were raking in billions, Beal shrank his bank's assets because he thought the loans were going to blow up. He cut his staff in half and killed time playing backgammon or racing cars. He took long lunches with friends, carping to them about "stupid loans." His odd behavior puzzled regulators, credit agencies and even his own board. They wondered why he was seemingly shutting the bank down, resisting the huge profits the nation's big banks were making. One director asked him: "Are we a dinosaur?"
Now, while many of those banks struggle to dig out from under a mountain of bad debt, Beal is acquiring assets. He is buying bonds backed by commercial planes, IOUs to power plants in the South, a mortgage on an office building in Ohio, debt backed by a Houston refinery and home loans from Alaska to Florida. In the last 15 months Beal has put $5 billion to work, tripling Beal Bank's assets to $7 billion, while such banks as Citigroup and Morgan Stanley shrink and gobble up billions in taxpayer bailouts.
Beal has barely got a dime from the feds. A self-described "libertarian kind of guy," Beal believes the government helped create the credit crisis. Now he finds it "crazy" that bankers who acted irresponsibly are getting money and he's not. But he wants to exploit their recklessness to amass his own fortune. "This is the opportunity of my lifetime," says Beal. "We are going to be a $30 billion bank without any help from the government." (A slight overstatement: He is quick to say he relies on federal deposit insurance.) Not much next to the trillion-dollar balance sheets of the nation's troubled banks, but the lesson here might be revealed in the fact that this billionaire is not playing with other people's money--he owns 100% of the bank and is acting accordingly.
It's hard to imagine Beal fitting in at a bankers' convention. He walked into the Las Vegas Bellagio in 2001 and challenged the world's best poker players to games with $2 million pots--the highest stakes ever. Donning large sunglasses and earphones, Beal held his own against the poker stars, once winning $11 million in a single day, although he shrugs that he lost more than he won. At the track he'll drive one of his nine race cars (costing as much as $100,000 each) at 150 mph. On city streets he cruises in a huge Ford Excursion, the vehicle that has made him feel safe since a drunk driver punctured his lungs in 2000. When Ford Motor discontinued the Excursion a few years ago, Beal bought an extra one for storage.
A math whiz who left Michigan State to dabble in real estate, Beal has offered a $100,000 prize to anyone who can solve a number-theory puzzle. Beal launched a rocket company that built the largest liquid-fuel engine since the Apollo missions. After spending $200 million over four years he shut the venture down, saying it was impossible to compete with NASA's subsidies.
In the last 15 years Beal says he has bought only one stock. If he ever thinks of investing in hedge funds or private equity, he says, "Just shoot me." The blunt-spoken Beal shuns publicity and is uncomfortable in the public eye. He concedes he can seem "unprofessional." After 20 years in the business he attended his first bankers' conference last year.
The son of a mechanical engineer, Beal grew up in Lansing, Mich. He ended up in Texas after buying an apartment complex in Waco. He founded Beal Bank in Texas in 1988, opening the first branch next to a Wendy's, and started purchasing distressed real estate loans from failing banks. Years later he also opened a bank in Las Vegas. Beal Bank has long been a unique animal, mostly buying loans in the secondary market instead of originating them. It was a successful model: In 2000 American Banker declared Beal Bank the most profitable bank in the nation as measured by its five-year return on equity of 50%.
By September 2004 Beal Bank's assets had climbed to $7.7 billion. Then Beal stopped buying, letting his loans run off. By September 2007 assets had shriveled to $2.9 billion, one-fifth of which was cold cash. He was worried that consumers had taken on too much debt and money was being lent to companies for next to nothing. "Every deal done since 2004 is just stupid," Beal says.
He began by pulling back from home loans--even those guaranteed by Fannie Mae and Freddie Mac. Beal thought the two quasi-government agencies were over-leveraged. When staffers mentioned their guarantees in deal presentations he would fire back that these guarantees were "worthless."
Outsiders thought it was Beal who didn't get it. Despite its aversion to credit then, the bank occasionally had to buy mortgages to meet federal low-income-lending requirements. Jonathan Goodman, then head of loan purchases, recalls salesmen from Countrywide laughing at him on the phone when he refused to buy iffy condo paper backed by the two agencies. "Countrywide, Bank of America, Washington Mutual ... every single [mortgage seller] thought we were insane," Goodman says. "They didn't know why we cared. They thought Fannie and Freddie guarantees were as good as Treasuries."
Beal also stopped making commercial loans. "If I see another office condo in Las Vegas or Phoenix, I'm going to throw up," he said at the time. He started selling, too. At a price of 115 cents on the dollar he unloaded a $75 million pool of loans that had been extended to Kmart, exercise chain 24 Hour Fitness and Regal Cinemas. That translated into a yield for the buyer of a mere 1.35 percentage points over Treasuries. "They were great loans at 85 cents," says Beal, referring to the price he had paid for them years earlier. "They're stupid at 115."
With fewer assets, he began laying off staff, cutting down to 200 people from a peak of 400. "Escorting all those people out the door was awful, the worst moments of my life," says Jacob Cherner, who oversees Beal's lending and debt purchases. Half of the 270,000-square-foot polished wood and Brazilian granite headquarters went dark. (Beal hastens to add he bought the building from an oil company desperate to move only because it was selling at a discount.) He hired agents to rent out the space.
Beal started coming to work at 10:30 and leaving at 2:30. He challenged colleagues to backgammon games and took hour-long lunches, complaining of being "bored stiff," recalls one frequent meal companion, real estate investor Steven Houghton. Then Beal would head home to walk a nearby creek with the youngest of his six children. He took up car racing, too. "I thought it would end in six months, and sanity would return," he says. "If I knew it would last nearly four years I would have thought of something else to do."
In late 2006 he sold $74 million of preferred stock although he had no immediate use for the proceeds. He says he couldn't resist the "stupidly mispriced" terms--as low as Libor plus 1.7 percentage points for 30 years. He wanted as much money available when the boom turned to bust. With the extra money the bank could pay off nearly all its depositors with capital on hand--nearly unheard of in the history of banking.
Then came a shocker: Amid one of the most reckless lending sprees in history, regulators focused on the one bank that refused to play along. Beal's moves confused and worried them, and so they began to probe him with questions. "What are you doing?" he recalls them asking. "You're shrinking yet you're raising capital?"
Says Beal about the scrutiny, "I just didn't fit into any box." One regulator, the former head of the Texas Savings & Loan Department, Charles Danny Payne, says, "I was skeptical at first, but I've gained a lot of confidence over the years," adding that Beal has an "uncanny ability to sniff out deals."
Next, the credit rating agencies started pestering him about his dwindling loan portfolio. They never downgraded him but scolded him for seeming not to have a "sustainable" business model. This while their colleagues were signing off on $32 billion of bum collateralized debt obligations issued by Merrill Lynch.
--------------------------------------------------------
Forbes.com said:
The Banker Who Said No
Bernard Condon and Nathan Vardi 04.03.09, 5:00 PM ET
Standing outside the glass-domed headquarters of his Plano, Texas, bank in March, D. Andrew Beal presses a cellphone to his ear. He's discussing a deal to buy mortgage securities. In just a few minutes, the deal's done: His Beal Bank will buy $15 million of face value for $5 million. A few hours earlier he reviewed details on a $500 million loan his bank is making to a company heading into bankruptcy--the biggest he's ever done. A few floors above, workers are bent over computer screens preparing bids for chunks of $600 million in assets dumped by two imploded financial firms. In the last 15 months, Beal has purchased $800 million of loans from failed banks, probably more than anyone else.
Andy Beal, a 56-year-old, poker-playing college dropout, is a one-man toxic-asset eater--without a shred of government assistance. Beal plays his cards patiently. For three long years, from 2004 to 2007, he virtually stopped making or buying loans. While the credit markets were roaring and lenders were raking in billions, Beal shrank his bank's assets because he thought the loans were going to blow up. He cut his staff in half and killed time playing backgammon or racing cars. He took long lunches with friends, carping to them about "stupid loans." His odd behavior puzzled regulators, credit agencies and even his own board. They wondered why he was seemingly shutting the bank down, resisting the huge profits the nation's big banks were making. One director asked him: "Are we a dinosaur?"
Now, while many of those banks struggle to dig out from under a mountain of bad debt, Beal is acquiring assets. He is buying bonds backed by commercial planes, IOUs to power plants in the South, a mortgage on an office building in Ohio, debt backed by a Houston refinery and home loans from Alaska to Florida. In the last 15 months Beal has put $5 billion to work, tripling Beal Bank's assets to $7 billion, while such banks as Citigroup and Morgan Stanley shrink and gobble up billions in taxpayer bailouts.
Beal has barely got a dime from the feds. A self-described "libertarian kind of guy," Beal believes the government helped create the credit crisis. Now he finds it "crazy" that bankers who acted irresponsibly are getting money and he's not. But he wants to exploit their recklessness to amass his own fortune. "This is the opportunity of my lifetime," says Beal. "We are going to be a $30 billion bank without any help from the government." (A slight overstatement: He is quick to say he relies on federal deposit insurance.) Not much next to the trillion-dollar balance sheets of the nation's troubled banks, but the lesson here might be revealed in the fact that this billionaire is not playing with other people's money--he owns 100% of the bank and is acting accordingly.
It's hard to imagine Beal fitting in at a bankers' convention. He walked into the Las Vegas Bellagio in 2001 and challenged the world's best poker players to games with $2 million pots--the highest stakes ever. Donning large sunglasses and earphones, Beal held his own against the poker stars, once winning $11 million in a single day, although he shrugs that he lost more than he won. At the track he'll drive one of his nine race cars (costing as much as $100,000 each) at 150 mph. On city streets he cruises in a huge Ford Excursion, the vehicle that has made him feel safe since a drunk driver punctured his lungs in 2000. When Ford Motor discontinued the Excursion a few years ago, Beal bought an extra one for storage.
A math whiz who left Michigan State to dabble in real estate, Beal has offered a $100,000 prize to anyone who can solve a number-theory puzzle. Beal launched a rocket company that built the largest liquid-fuel engine since the Apollo missions. After spending $200 million over four years he shut the venture down, saying it was impossible to compete with NASA's subsidies.
In the last 15 years Beal says he has bought only one stock. If he ever thinks of investing in hedge funds or private equity, he says, "Just shoot me." The blunt-spoken Beal shuns publicity and is uncomfortable in the public eye. He concedes he can seem "unprofessional." After 20 years in the business he attended his first bankers' conference last year.
The son of a mechanical engineer, Beal grew up in Lansing, Mich. He ended up in Texas after buying an apartment complex in Waco. He founded Beal Bank in Texas in 1988, opening the first branch next to a Wendy's, and started purchasing distressed real estate loans from failing banks. Years later he also opened a bank in Las Vegas. Beal Bank has long been a unique animal, mostly buying loans in the secondary market instead of originating them. It was a successful model: In 2000 American Banker declared Beal Bank the most profitable bank in the nation as measured by its five-year return on equity of 50%.
By September 2004 Beal Bank's assets had climbed to $7.7 billion. Then Beal stopped buying, letting his loans run off. By September 2007 assets had shriveled to $2.9 billion, one-fifth of which was cold cash. He was worried that consumers had taken on too much debt and money was being lent to companies for next to nothing. "Every deal done since 2004 is just stupid," Beal says.
He began by pulling back from home loans--even those guaranteed by Fannie Mae and Freddie Mac. Beal thought the two quasi-government agencies were over-leveraged. When staffers mentioned their guarantees in deal presentations he would fire back that these guarantees were "worthless."
Outsiders thought it was Beal who didn't get it. Despite its aversion to credit then, the bank occasionally had to buy mortgages to meet federal low-income-lending requirements. Jonathan Goodman, then head of loan purchases, recalls salesmen from Countrywide laughing at him on the phone when he refused to buy iffy condo paper backed by the two agencies. "Countrywide, Bank of America, Washington Mutual ... every single [mortgage seller] thought we were insane," Goodman says. "They didn't know why we cared. They thought Fannie and Freddie guarantees were as good as Treasuries."
Beal also stopped making commercial loans. "If I see another office condo in Las Vegas or Phoenix, I'm going to throw up," he said at the time. He started selling, too. At a price of 115 cents on the dollar he unloaded a $75 million pool of loans that had been extended to Kmart, exercise chain 24 Hour Fitness and Regal Cinemas. That translated into a yield for the buyer of a mere 1.35 percentage points over Treasuries. "They were great loans at 85 cents," says Beal, referring to the price he had paid for them years earlier. "They're stupid at 115."
With fewer assets, he began laying off staff, cutting down to 200 people from a peak of 400. "Escorting all those people out the door was awful, the worst moments of my life," says Jacob Cherner, who oversees Beal's lending and debt purchases. Half of the 270,000-square-foot polished wood and Brazilian granite headquarters went dark. (Beal hastens to add he bought the building from an oil company desperate to move only because it was selling at a discount.) He hired agents to rent out the space.
Beal started coming to work at 10:30 and leaving at 2:30. He challenged colleagues to backgammon games and took hour-long lunches, complaining of being "bored stiff," recalls one frequent meal companion, real estate investor Steven Houghton. Then Beal would head home to walk a nearby creek with the youngest of his six children. He took up car racing, too. "I thought it would end in six months, and sanity would return," he says. "If I knew it would last nearly four years I would have thought of something else to do."
In late 2006 he sold $74 million of preferred stock although he had no immediate use for the proceeds. He says he couldn't resist the "stupidly mispriced" terms--as low as Libor plus 1.7 percentage points for 30 years. He wanted as much money available when the boom turned to bust. With the extra money the bank could pay off nearly all its depositors with capital on hand--nearly unheard of in the history of banking.
Then came a shocker: Amid one of the most reckless lending sprees in history, regulators focused on the one bank that refused to play along. Beal's moves confused and worried them, and so they began to probe him with questions. "What are you doing?" he recalls them asking. "You're shrinking yet you're raising capital?"
Says Beal about the scrutiny, "I just didn't fit into any box." One regulator, the former head of the Texas Savings & Loan Department, Charles Danny Payne, says, "I was skeptical at first, but I've gained a lot of confidence over the years," adding that Beal has an "uncanny ability to sniff out deals."
Next, the credit rating agencies started pestering him about his dwindling loan portfolio. They never downgraded him but scolded him for seeming not to have a "sustainable" business model. This while their colleagues were signing off on $32 billion of bum collateralized debt obligations issued by Merrill Lynch.
