High Roller: Lessons from America's Richest Banker - Commoncog

[cedric]

Andy Beal's story is an astounding story of capital allocation, incidentally making him America's richest banker. A guest post by Frederik Gieschen.

---

This is a companion discussion topic for the original entry at https://commoncog.com/high-roller-lessons-americas-richest-banker

[ajzitz]

• What are some surprising similarities?

  • Both Andy Beal and Björn-Wahlroos were equity owners with skin in the game. Beal owned 100% of his firm’s equity and never gave up control while Wahlroos was a significant minority shareholder with influence with his management and and board roles.
  • Both men took advantage of a distressed seller counterparty; Beal doing so in many different context with the government often as that counterparty while Walrhoos did so with his joint venture partner in the “If” P&C insurance combination by buying them out.

• What are some surprising differences?

  • Wahlroos made most of his savvy capital allocation moves through M&A transactions: buying selling and merging in one fell swoop while Beal did transactions on a smaller scale buying loans, portfolios and doing more dirty work it seems.
  • Wahlroos used M&A, business sales, and acquiring public stakes in businesses as a means to scale his business up and down to accumulate and redeploy cash while Beal was content to let his business shrink and run-off while also raising cheap capital when he didn’t need it so he could redeploy in times of economics stress.

[cedric]

This is great stuff, @ajzitz — some of which I hadn’t thought about!

In particular, I didn’t think about these two points:

@ajzitz

• Wahlroos made most of his savvy capital allocation moves through M&A transactions: buying selling and merging in one fell swoop while Beal did transactions on a smaller scale buying loans, portfolios and doing more dirty work it seems.
• Wahlroos used M&A, business sales, and acquiring public stakes in businesses as a means to scale his business up and down to accumulate and redeploy cash while Beal was content to let his business shrink and run-off while also raising cheap capital when he didn’t need it so he could redeploy in times of economics stress.

Which seems quite significant, now that you’ve pointed it out.

Fwiw, Gieschen has more colour on Beal in this podcast episode:

Frederik Gieschen — On Agility, Agreeableness, Alchemy & the Arena

And one of the things he points out is that his initial interest in Beal was from the counter-factual “what if Buffett used a bank as a source of free cash flow for reinvestment within Berkshire, instead of insurance?” And it appears Beal is the answer to that counter-factual. Gieschen posits that perhaps Buffett would be more constrained, since banks are more tightly regulated than insurance.

Perhaps one consequence of that is just the bank structure, at least within the US regulatory world, prevents Beal from doing more Berkshire or Sampo like things.

[ajzitz]

Thanks for the feedback, @cedric. I will check the podcast out.

Part of the reason Beal and Wahrools did it differently is path dependence of career: Wahrools was a an investment banker, so was probably used to wheeling and dealing. Beal truly came up from side hustles to real estate to banking.