The Most Interesting Banker in the World

Imagine its 2006. You are a banker. You have tons of clients, and you are happy to finance their real estate transactions. As a matter of fact, its happening left and right. Your boss likes you. You are putting the bank's money to work. Nobody in your portfolio has defaulted in years, so you keep lending more and more money. The bank is making piles of money in interest payments due to your efforts. Life is good. Really good. You think to yourself, "maybe by 2009 I can make Chief Lending Officer...."

Of course, by now you know that those loans you made weren't such smart decisions after all. A good portion of your sponsors have either missed a payment, or you are scared they are going to. You are terrified you are going to lose your job, because your bank isn't lending money anymore. To anyone. Which kind of makes your job obsolete. Its now 2009.

But who could have foreseen such a cataclysmic event in the capital markets? Like a fourth grader caught for being naughty, you can only cling to the "but everyone else was doing it" excuse. Everyone that is, except for banker contrarian, Andy Beal.

Bankers typically graduated from a good university, with a good GPA. Andy Beal was a college dropout. Bankers don't typically like to gamble, certainly not with the bank's money. Andy Beal played in the World Series of Poker in $2 million dollar cash games against poker legends and held his own. Bankers usually rely on mandates, not their gut. Andy Beal didn't make a single commercial real estate loan between 2004-2007. Not one. In fact, for three long years, Beal barely made any loans, period.

While his banking cohorts were cleaning up, he idly sat on the sidelines, biding his time, and waited. Others bankers asked why. Regulators probed why, assuming he was up to no good or insane for not taking advantage. Waited for what, you ask? For this. For the imminent disaster he knew would strike sooner or later. For the credit markets to collapse. For bankers to lose their shirts along with their borrowers. And of course, for the once in a lifetime opportunity to capitalize on all this mess.

While Andy Beal's story is too long to tell on this blog, read the whole story, as reported in a Forbes.com article here. Here are the highlights:

In the last 15 months Beal has put $5 billion to work, tripling Beal Bank's assets to $7 billion

Beal is building 28 branches from Miami to Seattle, up from 7 at the end of last year

Beal has barely got a dime from the feds

He owns 100% of his bank, aptly named, "Beal Bank"

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%

Beal has offered a $100,000 prize to anyone who can solve a number-theory puzzle

"Every deal done since 2004 is just stupid," Beal says.

If he ever thinks of investing in hedge funds or private equity, he says, "Just shoot me."

His thoughts?

"Banks are on a prayer mission that somehow prices will come back and they won't have to face reality," Beal says. "Unemployment is going over 10%, commercial real estate hasn't even begun collapsing and corporate credit defaults are just getting started," he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society.

Here's that link one more time....You're welcome.