The past few years have been unsettling for Andrew Beal, the publicity-shy billionaire banker from Plano, Texas, who has a penchant for high-stakes poker. Like other smart money men, Beal is leery of asset prices fuelled by central bank intervention. So Beal hasn’t been making many loans recently and instead has built up a sizeable war chest of capital—enough to make more than $20 billion in fresh loans.
“There has not been anything to invest in. It’s the craziest environment, a world flooded with money,” says Beal. “It’s hard to sit by and pick your nose when you want to be doing deals.”
But with West Texas crude prices now down by 50 percent, to $50 a barrel, and many US oil and gas companies scrambling for cash, Beal has been quietly building an oil and gas lending team at his Texas bank, and though he has yet to close on his first deal, he expects to pull the trigger soon. “We are trying to get real active in the oil patch,” he says. “We’re looking at some decent-size deals, hiring people—we are going to go after it.” According to Beal, volatility will become the driving force in markets once the Fed actually begins raising rates. But this will have little effect on the inevitability of oil’s long-term price appreciation.
Andrew Beal, 62, is one commercial banker investors should pay attention to. With a self-made fortune estimated at $12 billion, he is the Warren Buffett of the banking business. Just as Buffett runs his insurance-centred holding firm, Berkshire Hathaway, almost as a personal hedge fund, so, too, does Beal run his bank. But unlike Buffett, Beal doesn’t have to entertain shareholders at annual meetings because he’s the sole owner of Beal Bank, which has 37 retail branches and $3.6 billion in deposits insured by the Federal Deposit Insurance Corporation (FDIC).
A math whiz who left Michigan State at the age of 20 to earn millions rehabbing and flipping apartment buildings, Beal founded his bank in 1988. It grew fast and became very profitable until 2004, when Beal got nervous about lax underwriting and risky terms in the market for residential and commercial real estate. So he stopped making loans, shrank his assets and all but shut down his bank. Beal spent the next three years honing his backgammon game and learning to race Nascars. After the financial crisis hit, Beal went into action, deploying his capital and snapping up distressed commercial and real estate loans—many from failing or failed banks that had been reckless. He more than tripled his bank’s assets to $11 billion, making enormous profits.
Then Beal put the brakes on again. He became convinced that central bankers had helped fuel a new credit bubble. He didn’t go as far as he did before the credit crisis—when Beal Bank was laying off workers while the balance sheets of most other banks swelled. But in the last two years or so, Beal Bank has been experiencing a high level of loan payoffs as people and businesses refinance their loans. Beal Bank has been originating only about $1.5 billion in loans a year.
By the end of 2014, Beal Bank’s assets had shrunk to $7.9 billion, and his dry powder was mounting. Still, the bank was profitable, earning $547 million on $611 million of net revenue last year. Now Beal Bank has in excess of $3.3 billion in equity capital, and its leverage ratio is approaching an unheard-of 50 percent of assets. The FDIC defines a well-capitalised bank as one that has a ratio of 5 percent capital. JPMorgan Chase’s leverage ratio stands at about 5.9 percent.
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(This story appears in the 15 May, 2015 issue of Forbes India. To visit our Archives, click here.)