Monday, April 6, 2009

A Different Kind of Banker

From Forbes, "The Banker Who Said No" (Hat Tip: Carpe Diem):

While the nation's lenders ran amok during the boom, Andy Beal hoarded his money. Now he's cleaning up--with scant help from Uncle Sam.


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.

You should read the whole thing, but here's one more brief quote from it:

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."

If you read the rest of article, you'll understand why Beal limits himself to buying distressed debt: he has access to more information than he would investing in a publicly-traded stock, he's built his own methodology, and he's good at it. He seems to be better at it than most of the hedge fund managers who invest in this asset class. The article notes that Beal got his start buying distressed debt during the last credit crisis.

The photo above, of the headquarters of Beal Bank, comes from the company's website.


John (aka The Masked Financier) said...

Sorry I only reached this post now.
I have written about Andy Beal's investing exploits in the context of his legendary poker career.
Beal certainly did have to sit out a lot of dud hands before waiting to pounce when the market setup fitted his investment thesis.
Keep up the good work.
John (aka The Masked Financier)

DaveinHackensack said...


Thanks for the comment. You should have linked to one of your Beal posts here.