What is Chris Flowers up to now? This year alone, the former Goldman Sachs partner and compulsive dealmaker has, through his buyout firm JC Flowers, completed, proposed or walked away from more deals than most bankers would dream about.
He acquired a $1.6bn stake in German bank HSH Nordbank from WestLB, flirted with Dusseldorf-based Landesbank, sniffed around UK life assurer Friends Provident; agreed, pulled out of, and landed in a legal wrangle over a $26bn deal for student lender Sallie Mae. Most recently, he and some partners lined up with other prospective bidders for Northern Rock.
On Tuesday, the day Flowers’ consortium has reportedly submitted a proposal for the troubled UK lender – understood to be a plan to repay up to £15bn of Bank of England cash on day one and then set out a timeframe for the repayment of the rest of the £20bn-plus in BoE loans – he leads a consortium in Tokyo in a deal to acquire the single biggest stake in Japanese bank, Shinsei.
Of all the deals to draw the veteran dealmaker of late, his move on Shinsei is particularly interesting — marking a triumphant return to Japan, or at least, to the bank where he is estimated to have made a cool $1bn-plus after he and his partners — primarily Ripplewood of the US – bought the flailing Long Term Credit Bank of Japan in 2000 for the knockdown price of Y121bn and transformed it into Shinsei.
Bloomberg reminds us that the Flowers/Ripplewood consortium — the first foreign investors to buy a Japanese bank — sold two-thirds of Shinsei to investors since 2004 for Y532bn, in what Carlyle Group co-founder David Rubenstein labelled the “most successful” private equity deal in history. Shinsei’s February 2004 IPO was priced at Y525 a share and a year later additional shares were sold at Y608 each.
It was the deal on which, notes Lex on Tuesday, “Flowers cut his teeth as a buyout maestro”, and which still sets teeth on edge in Japan.
They were the days for Shinsei. The Japanese bank last week reported a second-quarter loss of Y8bn yen as it wrote down the value of holdings in consumer finance units and subprime-related securities. Although it has maintained its forecast for a return to full-year profit of Y62bn, some investors have doubts.
Now, Flowers has now gone one better than his earlier coup at Shinsei. Having sold most of his Shinsei shares at Y525 — directly retaining about 6 per cent, as well as more through another vehicle associated with his buyout firm – he and his new consortium are buying them for Y425, potentially building a stake in the bank of just below 33 per cent.
The consortium plans to bid about Y202bn ($1.8bn) for up to 32.6 per cent of Shinsei Bank in a tender offer and private placement, bidding for a 22.7 per cent stake at Y425 per share, a 24 per cent premium to the last traded price. The Flowers-led group also then plans set to buy Y50bn worth of new shares, subject to completion of the bid and regulatory approval.
The price of Y425 represents a 17 per cent premium over Monday’s close and prices Shinsei at 11 times this year’s forecast earnings, ahead of similar-sized Japanese lenders, according to Lex.
Mr Flowers, a board member, is well-placed to value Shinsei, “but the lender is clearly troubled,” notes Lex:
It is bleeding red ink largely as a result of exposure to consumer finance, where new regulations clobbered profits. Its share price, excluding Tuesday’s bounce, has virtually halved this year; the dividend was scrapped and returns are negative.
Shinsei’s basic problem, though, is its lack of scale, with just 42 branches and 2m customers in a country dominated by three mega-banks. Thus, says Lex, “it is hard to see any elegant turnround that does not involve either asset sales or — what is surely the ultimate endgame for Japan’s three mid-sized, partially foreign-owned banks — consolidation”.
Shinsei investors, however, clearly like Flowers’ idea; on Tuesday they sent Shinsei shares soaring 9.3 per cent to Y398 in Tokyo, lifting the broader market.
So what makes the man tick? In an excellent profile of Flowers last month, the FT’s Gillian Tett, says that the son of a navy officer grew up in Boston and graduated from Harvard with a Magna in applied mathematics and a reputation among his fellow students for being “ruthlessly focused”.
He then joined Goldman, where he quickly made a impression by displaying near-fanatical devotion to hunting profitable deals. He worked every single day of his first year. His ascent was rapid. At only 31 he was made a managing director and by the early 1990s he was running the financial institutions group.
He was talked about as a possible future leader of Goldman but in 1998 a furious round of bloodletting erupted inside the bank, partly linked to its IPO. This resulted in the departure of John Corzine, then co-head of Goldman and a mentor of Mr Flowers.
These events prompted him to leave too. “That episode hit him really hard,” one of Flowers’ friends told Tett, noting that his disappointment at not reaching the top no doubt made him “doubly hungry” to prove himself. After leaving in 1998, Flowers set about creating a buy-out practice. Initially, he focused on a small Alabama financial institution called Enstar.
This bank had been hard hit by the junk bond scandal of the 1980s; Flowers acquired a large chunk for a bargain price and with a partner, Rod Frazer, turned it around. These days, Enstar has a market cap of about $1bn.
But the deal that really put Flowers on Wall Street’s map was his next one: the LTCB/Shinsei deal.
Unlike some of Wall Street’s flamboyant buyout kings, Flowers likes music and chess and, while he has given away substantial sums, he generally keeps this secret, according to Tett. “His personal style is also understated: he usually dresses in a monotone suit and plain white shirt. And while he can be witty in private, in public he can sound clipped and monotone.”
“He is a geek really. Everything is about the P&L for him,” one of his investors told Tett. “But he doesn’t chase money because he wants to buy yachts or stuff – he just wants to win.”