The Contrarian Banker Who Avoided Bad Loans… And Is Now Buying Up The Scraps

from the no-gov't-money-needed dept

While we’ve wondered why those who made such bad bets on Wall Street are getting bailed out and even relied upon to save the economy, Forbes has found one of the guys who knew better: Andy Beal. A banker in Texas who basically stopped taking on any new loans for years as he thought things were going out of control. In fact, he barely worked at all — stopping by just a few hours a day, playing board games with his staff, and even laying off about half of his employees. He did this while waiting for the market to collapse, knowing that things were way out of control. In return, he got investigated by regulators, who couldn’t understand why he wasn’t joining in the fun.

Of course, now that things have collapsed, he’s buying up distressed assets for pennies on the dollar, and wants to buy more, planning to become a huge bank. Oh, and all that government money that’s supposed to help those private companies who are buying up these assets? He doesn’t qualify for most of it (no more than a token amount that’s not even worth taking). Instead, it’s really designed for the folks who screwed things up in the first place. This guy — who actually saw what was going on, and prepared for it, now has to compete against those who screwed up and are being handed billions by the government.

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Comments on “The Contrarian Banker Who Avoided Bad Loans… And Is Now Buying Up The Scraps”

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22 Comments
Baloney Joe says:

Re: Toxic Assets

People seem to forget that these are not loans based on nothing, they are secured by real estate. Regardless of what the real estate market looks like today, everyone agrees that it will turn around, it always does. So really the asset is only toxic if you are trying to unload it now. Wait a while and it will no longer be toxic but profitable.

This guy got that.

Analyst (profile) says:

Seen it before

This isn’t the first time Andy has bet on the bust, nor is it likely to be the last. He has a trademark personality for spotting the bubble, protecting his business on the front end, and then profiting on the back end. It’s a shame the a-holes that caused the problem get to compete with him.

BTW, TA, when you say [Andy] will “start to try to collect on these bad loans”, what do you mean? That kind of a question makes me think you have no idea what you are talking about.

mike says:

i don't think you guys get it

nobody even has money for the good stuff now, let alone the toxic. he can buy good stuff right out from anybody easily because they are desparate for immediate cash. if he does buy any of the toxic waste you guys are alluding to – and doubtful he would – he’s surely intelligent enough to buy it for cheap, like 20 cents on the dollar. rather than what you and i are paying as taxpayers for it of course, 95 cents on the dollar.

ron paul 2012

Dave (profile) says:

Inflation

Anyone else worried about the where the bailout money is coming from? When the Fed injects more money into the system, then you have an ‘inflated’ money supply chasing the same number of goods in the market. How is this not going to led to higher prices for everyone? How is this not punishing people who saved their money?

“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children wake up homeless on the continent their fathers conquered.”

Analyst (profile) says:

Gotcha TA. Spot on. The CMO assets were grossly overvalued when they hit the street. In the current market, they are now grossly undervalued, even after accounting for future expectations of defaults and foreclosures.

“i don’t think you guys get it”? We, and especially Andy, do get it. The wikipedia entry on Andy is thin but still accurate.

http://en.wikipedia.org/wiki/Andrew_Beal

As it shows, he’s absolutely willing to invest in debt, when it is priced right.

Investors are now so afraid to hold these assets that they are a good, cheap investment for those willing to buy them. As you suggested, he will buy them at a discount, although probably for more on the order of 60 cents on the dollar.

mike says:

inflation

congress is stupid, but our republic is working as designed. our elected representatives are economically ignorant because the constituents that elected them are economically ignorant. votes are just bought with promises and populism. they always were but now the overwhelming majority is now that americans are so ignorant. they don’t understand how a world economy functions, they don’t save for a rainy day because the last time it rained was so long ago, or for anyone 30 and under they have simply never seen one.

the inflation is coming, the government will not let deflation happen and will replace personal spending with government spending. also as the world moves away from the dollar standard there will be much less of an appetite for our debt. dollars abroad will be cycled into our economy for our goods, all the dollars we were hoping would stay untouched back in a dark area of other central banks. the chickens will soon be coming home to roost.

Anonymous Coward says:

Beal Bank's Mortgage Arm (no pun intended)

I used to work for Andy Beal indirectly. He already has a large bank chain in Texas called Beal Bank. I helped start a mortgage company (called Loanstream) back in the day (before sub-prime loans got too hot).

He closed down Loanstream after only a couple years, but not because of the reasons you might think. It had to do with the job performance of the guy in charge of Loanstream moreso than any particular reason of “getting out of the toxic mortgage industry”. I would venture to say that was just a happy coincidence.

Of course, Andy Beal is a very smart guy and now realizes that it’s very worth it to buy these loans for pennies on the dollar. It is really a shame that we reward the failures and punish the successful, but that’s the way bailouts work. The well don’t need a doctor.

Jack Sombra says:

His number one advantage

Many people in the banking industry saw the same maddness as Beal but unlike him still continued to participate in it and the reason is pretty simple, if they had done the same as him shareholders would have got rid of them long before the crunch for “missing out” during the boom times (like hell even Beal got investigated by regulators for his actions, does anyone think if he had shareholders they would have stood for it?)

Many people go on about directors being held accountable to shareholders but these days shareholders are just as much to blame as directors. No one realy buys shares long term anymore and feel like the they own part of the company and have a stake in it’s future, now it’s all just company mnemonics and numbers in a portfolio and making the quick buck by getting in and out at the right time

I think over the next 50 to 100 years we will start to see the end of public companies and banks (because situations like the current one will wipe them out) and massive increase of private ones, because the latter will not have to be accountable to shareholders looking for short term profits, thus allowing them to take long term views and side step stuff pitfalls like Beal did

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