B.E. 100s Growth by Design.

M.R. Beal has become one of the leading black investment banks through innovation and reinvention

THREE BLOCKS FROM THE NEW YORK STOCK EXCHANGE, IN that canyon of capitalism called Wall Street, M.R. Beal & Co. is operating at full steam. The palpable energy of trading and deal-making radiates from its 17th floor offices. Traders feverishly work the phones in the bullpen. Down the main corridor, a half dozen staffers huddle in a glass-enclosed conference room reviewing yet another deal. And, a few feet away, two members of the equity research team pore over documents in a cluttered, paper-choked office as they prepare for a private placement that will give a start-up a much-needed capital boost.

As one would expect, the firm's founder, Bernard B. Beal, operates in a corner office with a panoramic view. Desktops are chock-full of mementos that signify his breadth of contacts--photos taken with such luminaries as the Rev. Jesse Jackson and former President George H. W. Bush adorn a credenza--and successful campaigns. But the office represents much more. It's the inner sanctum where the chief architect constructs new ideas and designs the firm's future.

It is Beal's analytical mind and attention to detail as well as his straight-forward business approach that has enabled him to thrive in this rough-and-tumble world. Says one of Beal's close business partners: "Bernard's less style, more substance. To him, the proof has to be in the numbers."

Beal didn't just survive over the years. He adapted, reinventing parts of the company at times but staying true to its mission. He spots and lures top talent. He directs his transaction team to constantly seek out the next deal, the untapped niches, from revolutionary securities to selling products via the Net. Quips the 47-year-old Beal: "You have to keep swimming. If you don't, you invite atrophy."

This M.O. has been responsible for M.R. Beal's longevity. That's why it's the last of the large black investment houses spawned during the go-go '80s to remain intact. In 2000, M.R. Beal managed total issues of $46.5 billion--$12.4 billion of those were senior-managed--compared with $18 billion in 1999, an impressive 158% jump. This activity vaulted M.R. Beal to No. 4 on the BE INVESTMENT BANKS list and earned it the distinction of being named the BE Financial Services Company of the Year.

MAKING IT IN MUNIS

M.R. Beal is small but effective, managing a wide array of services. The firm's 45 employees handle investment banking, financial advisory services, trading, fixed-income underwriting, and equity execution services. Primarily a muni shop, it has been able to score major public finance deals--serving as a senior manager on more than 100 transactions. It has served as senior manager for a $306 million Taxable Municipal Pension Obligation for Alameda County, California, and since 1996, has been tapped as the senior manager for nine general obligation bond issues totaling more than $470 million.

Beal is evangelical about customer service. And his firm's attention to detail has produced scores of satisfied clients. "Bernard Beal has a solid, reputable firm," says state comptroller and New York gubernatorial candidate H. Carl McCall, whose office selected M.R. Beal for various financings, including senior manager of seven bond issues exceeding $218 million for the Dormitory Authority of New York and $19 million in bond issues to finance multifamily projects. "The firm places a premium on technical expertise, serving its clients, partnerships, and providing competitive transaction costs."

Beal and his public finance team, including senior vice presidents Cathy Bell and Samuel L. Smalls, spend hours discussing their clients' needs and developing new offerings. The firm's latest fixed-income innovation has been tobacco settlement securitizations--complex transactions in which the firm sells bonds that pledge the receipts of tobacco lawsuit settlements. (Over the next 25 years, all 50 states and a number of municipalities will receive roughly $246 billion from the tobacco industry).

Smalls, a 10-year municipal finance veteran who also serves as manager of M.R. Beal's Western region, is the point man for the biggest such deal: a $225 million securitization for Alameda County, California. "The structure of the deal envisions the selling of bonds that pledge tobacco settlement receipts that are received by Alameda County over the next 40 years," says Smalls. "Tobacco-settlements are one example of esoteric assets which are revenue streams that can be legally pledged to a bond deal in order to raise money."

Now, M.R. Beal is looking at bonds securitized by the revenue streams of zoo admission fees, parking facilities, and college gifts. Smalls is proud of M.R. Beal's ability to gain a foothold in an arena few firms, black or white, have been able to crack. "We were the first minority firm selected as senior manager on such a transaction, which represents one of the more innovative deals that are being done in the municipal finance industry today," he asserts.

Beal's focus on customer service also gave life to Munibex.com, a venture in which Beal has invested 18 months and $2 million. Beal believes that Munibex, when completed, will be the nation's leading Internet-based trading forum for the purchase and sale of municipal and other fixed-income securities. Still in the test phase, Munibex will offer a method of "just-in-time" trading that will provide efficient service to its clients.

Even though the muni business has buoyed the fortunes of M.R. Beal, its tall, self-assured CEO is seeking to expand the firm's scope. He envisions its future composition as 50% involvement in corporate finance, 25% in municipal finance, 15% in brokerage execution, and the remaining 10% in retail investing.

Will M.R. Beal be able to pull it off?

RUNNING HARD

It may be a subway ride from the South Bronx to Wall Street, but Bernard Beal has traveled much further. As a youngster, he used to shine shoes for businessmen a few blocks from where he now crafts deals. The advice from his high school track coach has stuck with the former sprinter for more than 30 years: Run your own race and don't look back.

A graduate of Carleton College and Stanford University Business School, Beal began his career at E.F. Hutton, which would later become Shearson Lehman Hutton during his nine-year stint there. Oddly enough, when Beal was offered a job at Hutton in 1979, he had his choice of the coveted arena of corporate finance or the less-glamorous municipal finance department He chose the muni business. He recalls: "I wanted to go into municipal finance because it blended with my deep desire to do well and do good. I saw it as an opportunity to finance housing and healthcare."

During his tenure, Beal gained expertise in housing and education finance, which helped elevate him to senior vice president. In that position, he headed the firm's college and education group and started the housing group. He also gained a reputation for having a keen analytical mind and a taste for "running the numbers." A financial innovator, he was part of the team responsible for creating "put" bonds--a security that would allow the holder to redeem the issue on specified dates before maturity and receive full face value. Before leaving the firm, he spent three years, from 1985 to 1988, in the corporate finance department.

Bitten by the entrepreneurial bug, he launched M.R. Beal in 1988. He did it at a time when a group of other leading African American firms emerged--Grigsby Brandford & Co., W.R. Lazard & Co., and Pryor, McClendon Counts & Co. (PMC).

What surprised Beal was the intensity of the competition he faced as a solo player. "I had no idea how tough this business would be," he says. "I assumed that clients I had known before would continue to let me do deals as I had done. But when you are in a smaller boat, those waves do rock you."

But Bears ship didn't capsize. It moved forward. By 1990, the firm was involved in 62 long-term muni issues worth $4.1 billion, and served as senior manager of an all-minority financing team that sold a $50 million bond issue for the City of Chicago. In the early 1990s, through the Federal National Mortgage Association's (Fannie Mae) Access program, the firm became one of a sextet of black investment banks to be included in a 48-member group underwriting such residential securities as long-term debentures and notes, as well as such newfangled derivatives as real estate mortgage investment conduits (REMICs). By 1992, Beal had become a major player, handling multimillion-dollar transactions and earning the distinction of being named, in Black Enterprise's October 1992 issue, one of the "25 Hottest Blacks on Wall Street."

But events over the next few years would rock his world.

FACING THE STORM

In 1994, the Securities and Exchange Commission had approved two measures that shook up the investment banking community. First, it declared that cities and agencies had to increase their financial reporting so that individual bond owners could make informed purchases. Second, the agency ratified the ban on political contributions by municipal finance professionals to officials in jurisdictions where they had contracts.

Because of the ban on political contributions, municipal bond volume dropped by more than 50%. While large established white firms could move on to more lucrative game, black firms had few places to go.

The SEC's heavy-handed enforcement measures struck leading black firms like a sledgehammer. Such concerns as Grigsby, Brandford (which is now defunct) and PMC were rocked by the probe, losing clients and key personnel. During this period, W.R. Lazard, which was crippled when its founder died, imploded.

M.R. Beal was not immune to such investigations. Newspapers such as The New York Daily News, The New York Post, and The Bond Buyer reported that the firm was among a number of minority investment banks that allegedly bribed a Wisconsin state senator in exchange for help in snaring bond underwriting contracts. Within two days after the story broke, the New York City comptroller's office dropped M.R. Beal from the multi-firm underwriting team managing the sale of billions of dollars in municipal debt.

"[This situation] taught us how to communicate in a crisis," Beal says. "I found that we had to communicate externally and internally. We contacted our clients immediately and explained to them that the regulators only wanted to talk to us. [and we had not been charged with any wrongdoing]."

He also met regularly with employees to explain the situation and review procedures, as well as fully cooperate with federal regulators.

It helped, but M.R. Beal lost three additional clients. The cities of Baltimore and Philadelphia, as well as the state of Oregon, canceled bond-underwriting contracts. Beal was concerned about losing his contracts with the state of New York. To keep the firm's relationship intact with the state comptroller's office, Beal created what he called a "truth packet" that included subpoenas and other legal documents related to the case. After receiving the voluminous package, McCall indicated that he would not take business away from the firm. Maintains Beal: "If it hadn't been for H. Carl McCall, we would have been out of business."

REMODELING FOR GROWTH

Over the next couple of years, black firms were still reeling from the political ban as well as rising interest rates, which caused profits in the once-lucrative muni market to drop as much as 65%. Beal weathered the storm, generating most of his revenues from his established clientele. In fact, during this period, the dealmaker acquired Smith Mitchell Investment Group Inc., a Seattle-based municipal bond underwriting firm engaged in bond business east of Colorado.

As he fortifies the company, Beal is determined to increase his corporate finance business. Since 1992, the firm has completed 15 transactions. For example, it served as junior co-manager in the $10.62 billion IPO of AT&T Wireless Group and the $3.23 billion IPO of Charter Communications Inc. What excites Beal and members of his equity research team, headed by Executive Vice President Jarius DeWalt, are the prospects of handling private equity financing for midsize companies that have the potential to go public. "We are starting to look at midsize companies we can advise for the right to take them public," says DeWalt. "We don't want to take a company to the dance, and then watch on the sidelines while everyone else makes money."

DeWalt believes they may have found their dance partner in Numotech Inc., a Northridge, California, medical device company that develops innovative wound care products. M.R. Beal is in the process of completing a $10 million private placement for the firm. Numotech's president and CEO, Robert Felton, says: "They spent an enormous amount of time understanding the market not only from the scientific and financial aspects but the humanitarian issues. They assisted in creating a business plan in a manner that would truly tell the story of what we were about, and that was something nobody had ever done before."

Another promising area for the firm is asset management. Last year, Beal teamed with money manger Shawn D. Baldwin to launch Chicago-based Capital Management Group Advisors L.L.C. (CMG). The firm, which will offer a suite of investment products to institutional investors. Beal provides a strategic advisory role as the firm's chairman while President and CEO Baldwin runs its daffy operations. By next year, CMG should have a prominent position on the BE ASSET MANAGERS list. Just take a look at Beal's track record in such endeavors: In 1999, Beal financed and launched another successful African American money management firm, New York-based Paradigm Asset Management (No. 8 on the BE ASSET MANAGERS list with $2.2 billion in assets under management), which he later sold in 1995. Says Baldwin: "To start CMG, I needed someone with experience, credibility, and a powerful Rolodex. I found all of that in Bernard Beal."

The ambitious investment banker will leverage these assets and more to fulfill his grand design.