The Smartest Guy in the Room (Financial Services Company of the Year)

In 1988, Bernard Beal put forward a rather outlandish proposal to his wife, Valerie Lancaster-Beal. “Hey, look,” Beal recalls saying. “I’m thinking that maybe we take this money and go buy a farm.” Beal knew his wife was willing to say goodbye to Wall Street. The couple had achieved great success early in their careers–he as a senior vice president at brokerage house E.F. Hutton, and she as an investment banker with Drexel Burnham. They worked long, hard hours; lived on their salaries; and put their lavish bonuses in the bank. By the time they were in their early 30s, they had socked away enough money to escape to a more leisurely life. That year, as recession and crisis swept the world of finance, the couple was forced to do some soul-searching: stay in New York or leave?

Beal was serious about the farm, and Lancaster-Beal actually liked the idea. It wasn’t long before the two were touring with a real estate agent through the hilly countryside of northern Virginia’s horse country looking at equestrian farms. The couple saw several estates they liked, but when they returned to New York, Beal presented his wife with another option: a business plan he had written some eight years earlier while studying for his M.B.A. at Stanford University.

Reading the outline for the first time, Lancaster-Beal discovered that her husband had always dreamed of using his talents to start his own firm. The business plan was his wish list, a blueprint that outlined a small investment banking operation that specialized as an underwriter of municipal and corporate bonds as well as serving as an investment advisory firm. In the business plan Beal had hidden in a drawer for close to a decade, the couple found an answer to their dilemma. “We will get to that

(Continued on next page)

farm eventually,” Lancaster-Beal told him, explaining that between the two of them, they had the talent, the resources, and the potential clients to build a great firm. “It was our time,” she says. “I said: ‘Let’s go for it.’”

Some 23 years later, the firm Beal founded at the urging of his wife is touted as the nation’s oldest continuously operating minority-owned investment bank. M.R. Beal & Co. (No. 5 in taxable securities with $1.6 billion in lead issues and No. 3 in tax-exempt securities with $2.2 billion

in lead issues on the be investment banks list) consistently ranks among the top 20 firms conducting municipal debt transactions, and among the top 100 firms guiding corporate equity and corporate debt issuances, according to Thomson Reuters.

As chief executive, Beal hasn’t let the recent recession and slow-recovering economy hinder business. The company was engaged in $40.2 billion of public financing in 2008, followed by $45.4 billion in bond issuances in 2009. In 2010, the company’s senior managed and co-lead deals totaled more than $62 billion. A large part of what made 2010 a banner year was M.R. Beal’s participation as a so-called senior manager and sole book-runner in a $1.3 billion bond issuance for the State of New York. The deal made history as the largest New York State bond transaction conducted by a minority-owned firm. Also in 2010, M.R. Beal took part in major stock and corporate bond offerings for the likes of CitiGroup, General Motors, and Bank of America, underwriting more than $125 million of offerings as each of those companies raised money in the capital markets to pay back the U.S. Treasury for Troubled Asset Relief Program monies they received during the financial crisis. As a result of its financial performance, consistent growth, and innovation in the face of financial industry turmoil, Black Enterprise has chosen M.R. Beal & Co. to be our 2011 Financial Services Company of the Year.

(Continued on next page)

Just as Beal outlined in his business plan many years ago, M.R. Beal & Co. has three core businesses:

• Broker-dealer for investors who want to buy or sell stocks or bonds
• Assist corporations in issuing stock and in borrowing money when it structures corporate bond issues
• Municipal bond underwriting

M.R. Beal is most widely known for its third line of business. “Municipal bonds are really borrowings done by state and local governments,” explains Beal. “Say the City of New York needs to borrow $640 million for upgrades to the water system, they would come to M.R. Beal & Co., and we would arrange for that loan. We would find investors who are willing to lend the city the $640 million and we’d go out to each of those investors and we’d negotiate rates and terms that they were willing to make the loan for. We would negotiate with the City of New York so that they

could borrow the money, how long they were going to borrow it, and then execute the loan very much the way you go out and get a single-family mortgage for your house. That is exactly what we do and we get a very small fee for doing that.”

THE BIG DEAL
As Beal’s firm helps cities, counties, and states across the country borrow money to fund public works and other projects, those “small fees” add up. What sets M.R. Beal apart from the scads of other firms in the same business, says Beal, is that “we are really good at negotiating the terms of the loan. So the client gets the lowest borrowing costs.”

(Continued on next page)

That’s something Paul T. Williams Jr., president of the Dormitory Authority of the State New York, can attest to. DASNY is a state entity that provides financing and construction for public and private universities, medical facilities, and other state-related institutions. It is one of the nation’s largest issuers of municipal bonds. M.R. Beal’s $1.3 billion history-making bond deal in 2010 was a DASNY issue. The personal income tax revenue bonds, or PIT bonds, were used to finance State University of New York educational facilities, as well as community colleges, City University of New York facilities, libraries, and other economic development projects. Williams, who chaired a taskforce in 2008 to better understand why minority firms weren’t leading more bond transactions, was more than pleased with the deal’s outcome.

The transaction was noteworthy not only for its size; M.R. Beal managed to orchestrate the lowest-cost PIT bond financing done by the state of New York. It made sense to choose M.R. Beal to lead the issue, says Williams, because Beal had a terrific track record. “Bernard makes it a point to be sensitive to broader state policies,” Williams notes. “That can be helpful. We need to know how transactions we’re considering might impact policy. Bernard tends to bring a more global view to his business so it’s not exclusively, ‘How do we get this one deal done?’ Also, he has a record with us of having really good market intelligence.”

AN EDUCATION
Beal has always been known for his intelligence. Born in 1954, he grew up in the Morrisania neighborhood

in the South Bronx, New York. “I was the No. 1 kid in almost every subject in my school–definitely in math,” Beal laughs. “And I remember when I won the seventh-grade math prize, I went up on stage to get the award, and here was my acceptance speech: ‘You might as well put my name on it in the eighth grade and ninth grade, because I’m going to win those too. This is ridiculous–we shouldn’t even have a competition.’”

(Continued on next page)

Beal’s smarts led a teacher to recommend him for A Better Chance, an organization that places students from low-income neighborhoods into more challenging private and public schools. To be considered for the program, Beal had to pass a 100-question New York City Regents exam with a score of 66 or higher. So sure of himself, Beal answered only 66 of those questions, leaving the remaining 34 blank. When the teacher suggested he answer the remaining questions, the young Beal replied, “I finished it.” When the teacher explained that just one incorrect answer would eliminate him from participating in the program, Beal’s response was, “I didn’t get one wrong.” The teacher demanded he sit down and finish the exam, so Beal sat at the desk with hands folded until time was up–not bothering to finish the exam. He passed.

The next year, Beal began classes at the prestigious Wooster School in Danbury, Connecticut. For a brief time at Wooster, Beal was humbled to learn that he was no longer the brightest kid in the class. But with the help of a kind teacher who helped him after hours, Beal quickly rose to the challenge. It wasn’t long before the same intellectual haughtiness he displayed in the Bronx fueled him through Carleton College, Stanford University’s M.B.A. program, and onto Wall Street as a young banker at E.F. Hutton. “You know, I’d have to say that same kind of arrogance, that same kind of hunger, is inside of me. It’s still there,” Beal confesses.

THE EXPANSION TEAM
Beal’s command of facts and figures masked one of his great weaknesses. While he has always been a great pitchman, able to woo clients with his social ease, he will readily admit that he’s not the best manager of people–something he didn’t discover until he started the firm. “I really wanted a business plan where everybody just worked, knew what to do, and did it–and there was no hierarchy,” says Beal. “I just didn’t want the hierarchical structure. But as human beings we are herd animals who require a leader. If there isn’t a leader, then the herd stampedes or scatters.”

(Continued on next page)

To keep his herd of now 50 employees from wandering, Beal hired Stanley Grayson in 2002. Grayson, a former deputy mayor for finance and economic development of New York City under Mayor Ed Koch, serves as vice chairman and chief operating officer of M.R. Beal. What does that title mean in the firm’s day-to-day reality? “Bernard and I complement each other very well. In Bernard, you have true brilliance of mind. I think part of my job is to take a lot of things off his plate to allow him to focus on strategic direction,” says Grayson, whose managerial know-how has helped the firm court a new, smart team of bankers and sales representatives who were downsized from larger Wall Street firms in recent years.

Grayson’s presence has allowed Beal and his wife, who serves as the firm’s senior vice president and director of strategic planning, to focus on expanding and diversifying the business. One of the firm’s most notable recent moves came last November when it announced a strategic alliance with national brokerage firm TD Ameritrade. The larger brokerage house will offer newly issued municipal bonds underwritten by M.R. Beal, meaning that retail investors, and independent registered investment advisers on TD Ameritrade’s platform, will have access to the hundreds of municipal bond issues M.R. Beal brings to market each year.

Beal is so focused on the continual building of his firm that he hasn’t given much thought to the horse farm he and Lancaster-Beal dreamed of years ago. The Beals are considering a succession plan that would include a place for their son, Michael, should he be interested in joining the firm in the future. Michael Beal, 27, is finishing his first year of M.B.A. studies at Harvard Business School after working in Morgan Stanley’s mergers and acquisitions shop and completing a stint with a West Coast private equity firm. The Beals also have a 23-year-old daughter, Erica, who teaches third grade at a charter school in Harlem. Any plans the Beals have for a life of leisure are a long way off. “We’re really focused on making M.R. Beal the best it can be,” says Lancaster-Beal. “We’re not ready for the farm yet.”