Reputation of Flowers first blossomed in Japanese deal

Private equity investor J Christopher Flowers made his name rescuing a Japanese bank, writes David McNeillin Tokyo

US PRIVATE equity investor J Christopher Flowers is part of a consortium of investors controversially bidding to take part in the recapitalisation of Irish banks. Flowers earned his reputation for turning around distressed financial assets in Japan. So, what are the lessons from there?

In 2000, Flowers bought the Long-Term Credit Bank, which had been nationalised by the Japanese government in the chaotic aftermath of the 1997/1998 Asian financial crisis.

The deal, in a country with a famously closed financial system, was considered extremely risky at the time, but Flowers initially proved the doubters wrong.

Along with US private equity company Ripplewood Holdings, Flowers recapitalised the bank with about $1.07 billion (€830 million), and in 2004 relisted it as Shinsei - the Japanese word for "reborn".

The relaunch, which saw the bank's value climb back to $10 billion, was one of the most successful initial public offerings in Japan's history and made Flowers a star in the world of private equity finance.

Flowers retained about 10 per cent of Shinsei stock along with a board seat, and ruthlessly cleared dead wood and bad loans before retooling the bank for new businesses, particularly consumer finance. His methods shocked some in Japan but convinced others that the nation's bloated financial institutions needed such aggressive Wall Street-style management to survive.

Shinsei's success was shortlived. The bank lost 42 per cent of its value last year, in part because of the subprime crisis, which forced a $107 million writedown. Tougher government regulations over the freewheeling lending methods of consumer finance firms added to its woes and wiped $420 million from Flowers's personal stake.

But he disappointed those who said he would cut and run last November with an injection of 50 billion yen (€406 million) in fresh capital and an announcement that he was upping his stake in the bank to one-third.

Some wonder whether he is genuinely in for the long haul, or simply priming the bank for a bidding war but, having built his global reputation on the rescue of Shinsei, the financier appears genuinely reluctant to let it fail.

Observers say, however, that he will have a far harder time riding out the current financial crisis, and winning business in a much tougher regulatory environment than he experienced in rescuing the failed bank eight years ago.