Beal Becomes Billionaire With FDIC Assets as He Tops Poker Pros

June 29 (Bloomberg) -- Bloomberg senior writer Anthony Effinger talks about his profile of Beal Financial Corp. founder Andrew Beal featured in the August issue of Bloomberg Markets magazine. Beal's Plano, Texas-based company owns three banks with deposits insured by the Federal Deposit Insurance Corp. Effinger speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Andy Beal’s road to becoming a billionaire, doing deals with the likes of Carl Icahn and Donald Trump , runs straight through the slums of Newark, New Jersey.

It was 1981, and Beal, then a 29-year-old vulture investor, was scoping out two 16-story apartment buildings owned by the U.S. Department of Housing and Urban Development. The bricks were chipped and bulging off the exterior of the buildings. Tenants had pried open the elevator doors and thrown furniture down the shafts.

Beal liked what he saw.

He and a partner bought the towers for $25,000 and a promise, backed by a $2.5 million letter of credit, to fix the bricks. They did the repairs -- employing armed guards for protection when visiting the apartments -- and never tapped the credit line before selling the buildings two years later to a New York doctor for $3.2 million, Bloomberg Markets magazine reports in its August issue.

In the past three decades, Beal has made a fortune buying distressed assets. He snapped up bonds of power companies during the California blackouts in 2001, debt backed by jetliners following the 9/11 terrorist attacks and billions worth of commercial and real estate loans after global credit markets froze in 2008.

In between, the investor with a restless mind started a company to build rockets and beat a rotating team of pros at Texas Hold ’em in the world’s richest poker game.

Beal’s focus on beaten-down loans makes him look like a hedge-fund manager. He’s not; he’s a banker.

His Plano, Texas-based company, Beal Financial Corp., owns three banks. Deposits are insured by the Federal Deposit Insurance Corp. That means Beal raises money for his investments by promising, these days, to pay depositors just 1 percent a year. A small bank in New Mexico he bought in 2010 offers checking accounts. Otherwise, his 34 branches sell just savings accounts and certificates of deposit, which are less expensive to manage.

“It’s an FDIC-insured hedge fund,” says Sherrill Shaffer, who worked for the U.S. Federal Reserve for 17 years until 1997 and is now the John A. Guthrie Distinguished Professor of Banking and Financial Services at the University of Wyoming in Laramie.

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