Beal's banks also must hold extra capital because they make riskier loans, says George Burns, commissioner of the Financial Institutions Division of the Nevada Department of Business and Industry, a regulator.
Beal Bank Nevada is stockpiled for Armageddon. It had $2.2 billion of equity capital at the end of 2010. Equity for a bank is the amount of assets -- its outstanding loans -- minus liabilities, or deposits. Beal Bank Nevada's equity capital accounts for 35 percent of total assets, according to FDIC data. The average U.S. bank had an equity-to-asset ratio of just 11 percent at the end of 2010.
Beal's profitable trades have produced almost off-the-charts results compared with other banks. Beal Bank Nevada had a return on equity of 27.4 percent in 2010 versus an average of 5.9 percent for all U.S. banks, according to the FDIC. Beal says he succeeds because he does his homework and always buys loans that have collateral that he can get if the borrower defaults.
Beal could get richer if he got out of banking with its costly regulations and formed a hedge fund, says Tim Yeager, associate professor at the Sam M. Walton College of Business at the University of Arkansas in Fayetteville.
"He's paying nothing on deposits and making extremely high returns on assets," Yeager says. "But he could make more money, I promise you, by not being a bank."
Beal actually toyed with the idea, starting an affiliate called CLG Hedge Fund LLC. Beal says he put Hedge Fund in the name because he wanted its employees to think like hedge-fund managers, buying and making higher-yielding loans. He even put them in separate offices in Frisco, 18 miles (29 kilometers) from his bankers in Plano.
CLG never operated as a hedge fund, partly because Beal didn't want to share his returns. "Interfacing with regulators is one thing," Beal says in an e-mail. "Taking calls constantly from various investors is intolerable. Also, why split profits?"