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View Full Version : Andy Beal is done with Poker


DesertCat
01-20-2005, 01:18 PM
Wasn't sure if this was posted before, but last week's Wall Street Journal had this interesting story on Andy Beal. Key points, apparently banking regulators don't want him to play poker anymore, and he's giving it up.

Maverick Banker In Texas Chases Distressed Assets Once, Andrew Beal Fixed Up Old Houses; Now He Buys Marked-Down Mortgages Big Bets, Too, at Poker Table

By GEORGE ANDERS
Staff Reporter of THE WALL STREET JOURNAL January 13, 2005; Page A1

PLANO, Texas -- Shortly after Sept. 11, 2001, U.S. airlines' prospects looked dire. But Texas banker Andrew Beal saw a bargain. He began buying airline bonds at deeply depressed prices.

It's been a bumpy ride, but many of the $1 billion of bonds he bought have rallied substantially. That means profits of at least $70 million a year, Mr. Beal says.

Such bets have made the 52-year-old Mr. Beal a billionaire and a controversial figure in banking. His wholly owned Beal Bank ranked seventh in profitability among 8,000 U.S. banks as of Sept. 30, as measured by a five-year average return on equity, according to Highline Banking Data Services. But Mr. Beal likes to pour money into financially strained areas that others won't touch, creating some concern about how long his winning streak can last.

His banks have loaded up on everything from hurricane-relief loans to bankrupt-utility obligations. Beyond banking, Mr. Beal's spending tastes are even more eclectic. In the late 1990s, he spent $200 million creating a rocketry business that ultimately failed.

Since then he has taken up high-stakes poker, playing against top Las Vegas gamblers for $100,000 minimum bets -- with wagers sometimes running to
$1 million a hand. Bank regulators recently urged him to leave the cards alone.

Some friends of Mr. Beal see him as banking's eternal teenager:
strong-willed, rambunctious and defiant of industry traditions. In a series of interviews, Mr. Beal railed against mainstream banking as stodgy and lethargic. "If people say I'm doing something crazy," he said, "that's usually a good sign."

Unlike many bankers, Mr. Beal never earned an M.B.A. or climbed the corporate ladder. He is a college dropout who has been self-employed his whole career. He bought and fixed up old homes in his 20s, then opened a small bank 16 years ago. Today, he owns 100% of Beal Financial Corp., a bank holding company doing business in Texas, Nevada and California with combined assets of $7.8 billion and a net worth of more than $1.7 billion.

For all his wealth, Mr. Beal remains unabashedly cheap, pestering employees to turn off the lights when they go home, driving an aging Ford Expedition and frequently eating at fast-food restaurants. He takes an ornery delight in avoiding mainstream banking areas, such as credit-card and home-mortgage lending, in favor of his idiosyncratic investments. "We do business where no one else wants to," he says. "If it's straightforward, it probably isn't for us."

Bank analysts have worried for years that Mr. Beal's appetite for investing in troubled sectors could backfire. Danny Payne, head of the Texas Savings & Loan Department, calls Beal Bank's profitability quite attractive but says his agency from time to time "may have expressed concern" about its asset quality. He says those qualms aren't an ongoing consideration.

There is a toughness to Mr. Beal's formula that bothers some people, too.
His Texas bank has sued at least 90 delinquent borrowers in federal courts in the past five years and many more in state courts. In the U.S. Virgin Islands, small borrowers are fuming about tactics his lawyers have used in pursuing people behind on their payments.

Mr. Beal acknowledges that some debt collectors engaged by his banks may have pushed too hard. He says he has tightened standards in that area. As for risk, he says his banks' portfolios are safer than they seem.

The son of a Michigan civil servant, Mr. Beal raced through a stream of money-making ideas while in high school. At various stages, he fixed television sets, hawked carnival games and installed apartment buzzers. "Andy always was enthusiastic about jumping into new areas," recalls Larry Fowler, a Lansing lawyer and early adviser to Mr. Beal. "He never researched very well where he was going to land."

In one scheme, Mr. Beal talked the city of Lansing into letting him relocate houses being dislodged by a road-widening project. He linked a bunch of hydraulic jacks so he and a few friends could raise the houses at night before moving them. But when a supporting steel beam cracked, a house suddenly thudded onto a major roadway. Traffic was snarled for most of a day.

Mr. Beal enrolled at Michigan State University but lost focus on classes when he spotted chances to do small-time real-estate deals. He bought a Lansing house for $500 down and a $6,000 loan, fixed it up and rented it out profitably for $119 a month. "At first my mother was horrified," he recalls.
"She had higher hopes for me. A week later, she decided that even if it was a dumpy little house, she'd be supportive."

More fixer-uppers followed, with some scary adventures along the way. He and two partners in 1981 acquired the Brick Towers public housing project in Newark, N.J., for less than $25,000. Wanting to inspect its facade, he rode up on a scaffold to the 12th-floor level. Suddenly, the scaffold tilted uncontrollably. Mr. Beal and a friend smashed an apartment window and crawled inside to safety.

Along the way, Mr. Beal honed his model for finding bargains. He scouted for steeply marked-down properties with problems that seemed fixable. He courted exhausted sellers who wanted out at any price. And he targeted investments where unpopular locations, paperwork hassles or other taints meant that rival bidders were rare. If owners wanted out, they had to work with him.

"He was such a great negotiator," says Jerry Holley, who invested alongside Mr. Beal in some 1980s deals. "He'd go into government agencies just before the end of their fiscal year, when he knew they needed to get properties off their books. He'd ask for an extra year to pay. He'd ask for more help fixing up the property. He just wouldn't give in."

Mr. Beal decided his formula would work even better if he switched to the lending side of real-estate finance. That way he could get into hundreds of obscure deals, and with cheap capital: customers' deposits.

In 1988, Mr. Beal opened a tiny bank in a one-story cinderblock building next to a Wendy's in suburban Dallas. At the time, Texas was awash with banking failures. To him, this wasn't a problem but an opportunity. The Resolution Trust Corp. was taking control of failed savings and loans and aiming to unload their loan portfolios.

A San Antonio S&L's loans went on the block in 1989. "I spent a weekend in San Antonio driving past every piece of collateral to make sure that most of the homes were worth their loan balances," Mr. Beal recalls. Then he bought the maximum allowable number by law of its mortgage loans, at 62 cents on the dollar. The discounted price translated to loan yields of about 15%, Mr. Beal says. Beal Bank's profits surged.

To expand its balance sheet, the bank courted affluent, cautious, older depositors wanting an extra fraction of a percentage point on their certificates of deposit. That makes Beal Bank seem like an old-fashioned institution, with six quiet branches, in Texas and California, that don't appear to do much except issue CDs. The action is on the lending side, rarely visible to the public.

Not everything Mr. Beal tries works. His bank in Plano hunted for profitable loans in Russia in the mid-1990s but came away empty-handed. It also closed down a Mexican lending operating after several years when local regulations made it hard to earn adequate profits. A commitment to finance a New Mexico ski resort didn't work out well.

But Beal Bank's profitability gauges, such as net interest margin or return on assets, typically are double or triple the norms for commercial banks, says John McCune, head of research at data firm SNL Financial LC. For the nine months ended Sept. 30, Beal Bank reported net income of $605 million and assets of $4.6 billion.

When evaluating portfolios, Mr. Beal has been known to herd employees into a small, windowless room dubbed "the bat cave." He sits in front of a monitor shielded by a big cardboard viewing tube so no one else can see what he is doing. Then he quizzes employees about individual loans and raises or lowers their valuations, without saying why. "It lets me make adjustments without having people start tailoring their answers to what they think I want to hear," Mr. Beal says.

In 2000, Beal Bank bought more than $1 billion of commercial loans from the Small Business Administration, paying as little as 42% of their face value.
Some were in default. Others were in jurisdictions such as Palau, where it wasn't clear whether they were governed by U.S. or local law. "It wasn't an easy package of loans to analyze, but it turned out to the best deal I've ever done," says the bank's head of loan acquisitions, Jonathan Goodman.

The SBA at the time was being asked to look at private-sector solutions to servicing its loan portfolio, as part of a shrink-government initiative.
SBA
spokesman Michael Stamler says that when the agency sold loans, it lacked an accounting model to determine whether such transactions helped its overall finances. That has led to concerns that the agency may have sold loans too cheaply. Mr. Beal replies that his biggest purchases were in open auctions, where others could have outbid him but did not.

About 3,000 SBA loans that Beal Bank bought had been made in the Virgin Islands after 1989's Hurricane Hugo. About 500 borrowers were behind on payments. Beal Bank pursued them much more aggressively than the SBA had.
The bank in 2003 said that it had sued 175 people, in some cases raising the possibility of seizing homes that the business borrowers had used as collateral.

One such suit, in Virgin Islands bankruptcy court, names Susan Allick, a schoolteacher who borrowed to repair a boat used in a tourist business.
The
bank is seeking repayment of $58,000 she owed the SBA, plus about $12,000 for collection expenses of lawyers the bank hired. Those fees ran as high as $280 an hour for handling phone calls with Ms. Allick. The case is pending.

The Virgin Islands' congressional delegate, Donna Christian-Christensen, has been urging Beal Bank to take a gentler approach. Foreclosures are "devastating to an individual," she wrote to the bank. The bank's general counsel, Stephen Costas, says, "We'd like people to pay as agreed. We look at individual cases and do what's appropriate." He says the bank tries to keep costs down when it hires outside lawyers.

Mr. Beal says he has sometimes treated a delinquent borrower leniently out of compassion, although "I don't know how many times I've done that in my career. Probably fewer than 10."

Beal Bank has become more active as an originator of loans, recently leading a bankruptcy financing for Donald Trump's casinos in Atlantic City, N.J.
And, in keeping with its taste for what others shun, the bank has lent to California coastal logging, an industry that faces high regulatory and environmental hurdles.

"I winced at their terms at first," says Richard Pedula, a Willits, Calif., timber executive who borrowed $50 million from Beal Bank in 2004 at about 10% interest. "They want their pound of flesh. But coastal forest properties are considered radioactive by traditional lenders. They were able to see past that and strike a deal. I'd like to do more business with them."

Mr. Beal says he has grown frustrated with Texas regulations making it hard to do certain kinds of loans, so last summer he opened a Nevada bank, Beal Savings Bank. It reported assets of $3.2 billion and net income of $20.8 million as of Sept. 30. The Las Vegas operation could become the largest part of his banking business, says Molly Curl, a senior vice president at parent Beal Financial.

Mr. Beal has other interests in Las Vegas. Since 2000, he has been visiting casinos to play marathon sessions of Texas hold 'em poker against some of the world's top gamblers. Participants say Mr. Beal sits practically immobile for hours. He wears sunglasses and headphones to shut out voices, so he won't inadvertently betray a clue about his hand by making eye contact or chatting.

Other players say he lost several million dollars in these games, though a winning spree last spring brought him close to break-even. Mr. Beal doesn't dispute that account. He is known for blasting away with big bets even if he has bad cards, sometimes inducing opponents with better hands to fold.

"It's almost as if he's playing with disdain for the value of money,"
says one opponent, Doyle Brunson, a former poker world champion. Mr. Brunson, a legendary bluffer in his own right, calls Mr. Beal "a very difficult person to play against."

This fall, Mr. Payne, the Texas regulator, phoned a Beal Bank official to voice concern about the boss's poker habit. "We normally don't interfere with someone's private life," Mr. Payne says. "But there is some concern about public perceptions in this case, and we shared that."

Mr. Beal says he is through playing high-stakes poker, in part because he and the professional gamblers can't agree on terms for a rematch.

Some of his friends are hoping that's the case. "I'm the fretful uncle about this," says Mr. Fowler, the Michigan attorney. "I tell him: 'Now, Andrew, don't get carried away too much with this. You get on the radar screen and the bank examiners are going to take a dimmer view of a guy who runs a bank and is gambling for high stakes.' "

Still, Mr. Fowler adds, "I think Andy has a capacity to keep things under control. If he loses a few dollars, he's not going to chase it."

lucas9000
01-20-2005, 01:42 PM
[ QUOTE ]
taints

[/ QUOTE ]

joking aside, that was a fascinating article.

AngryCola
01-20-2005, 02:03 PM
[ QUOTE ]
Doyle Brunson, a former poker world champion.

[/ QUOTE ]

Anybody else get irked about poker players being called "former champions"? He is a world champion and will always be.

I've never understood that.

Btw, nice article. Thanks!

MRBAA
01-20-2005, 03:18 PM
So then Jack Nicklaus is the US Open Champion and Rod Laver is Wimbledon Champ in 2005?

Ummmm...not.

BusterStacks
01-20-2005, 04:27 PM
[ QUOTE ]
[ QUOTE ]
taints

[/ QUOTE ]

joking aside, that was a fascinating article.

[/ QUOTE ]

awesome. As soon as I read that part, I scrolled down to quote it... gotta be faster I guess. hehe... taints...

AngryCola
01-20-2005, 04:36 PM
[ QUOTE ]
So then Jack Nicklaus is the US Open Champion and Rod Laver is Wimbledon Champ in 2005?

[/ QUOTE ]

No.. silly person.

You added something. You added the years.

Jack Nicklaus is a US Open Champion.
There is nothing wrong with the above statement.

You see "former" champion all the time in poker.
Yet, in golf they always say "x time US Open Champion, Jack Nicklaus"
I don't think I've ever heard them call Nicklaus a former champion.

I don't know.
I can see what you are saying, but it's just one of those little things that bugs me.
No big thing.

[ QUOTE ]
Ummmm...not.

[/ QUOTE ]

Way to bring back that gem from the early 90s.

URMeowed
01-20-2005, 05:30 PM
[ QUOTE ]
Still, Mr. Fowler adds, "I think Andy has a capacity to keep things under control. If he loses a few dollars, he's not going to chase it."


[/ QUOTE ]

Yeah, that's why they started out playing 10k/20k and ended up playing 100k/200k. He was stuck, raised the limits but he wasn't chasing at all. And the reason they aren't playing anymore is Andy wanted to play even higher. Meow.

DesertCat
01-20-2005, 07:34 PM
I found the article interesting because of it's contrast with the typical portrayal of Andy Beal as a mega-fish smuck. He clearly seems to have the brains and decisiveness to be a very good poker player, if he wanted to work at it.

But my guess is that he won't. I can't see him putting in all that time grinding at the tables when he has such immense rewards in banking.

deacsoft
01-20-2005, 07:43 PM
[ QUOTE ]
[ QUOTE ]
Still, Mr. Fowler adds, "I think Andy has a capacity to keep things under control. If he loses a few dollars, he's not going to chase it."


[/ QUOTE ]

Yeah, that's why they started out playing 10k/20k and ended up playing 100k/200k. He was stuck, raised the limits but he wasn't chasing at all. And the reason they aren't playing anymore is Andy wanted to play even higher. Meow.

[/ QUOTE ]

I started at .50/1.00 and I play $4-8 now. I'm not chasing. I want to play higher yet too.

cwsiggy
01-21-2005, 12:56 AM
Johnny Chan was quoted as saying with regard to Beal "You can't bluff a sucker..."

Nottom
01-22-2005, 02:04 AM
[ QUOTE ]
He clearly seems to have the brains and decisiveness to be a very good poker player, if he wanted to work at it.

[/ QUOTE ]

He might very well be a top notch poker player, unfortunately his game selection is terrible.

Sponger15SB
01-22-2005, 05:51 AM
[ QUOTE ]
Johnny Chan was quoted as saying with regard to Beal "You can't bluff a sucker..."

[/ QUOTE ]
...purple monkey dishwasher.



I don't believe this.