J Christopher Flowers: after the storm, the deals

J Christopher Flowers grimaces as he remembers what a "lonely place" it was to be a private equity investor specialising in the embattled financial service industry in the wake of the financial crisis.

"This is all we do, so we stuck with it, but everybody else hit the road," he says over lunch at the headquarters of JC Flowers, his buyout firm, on New York's Fifth Avenue.

But the JC Flowers boss says he is now astonished by how quickly investors have poured back into financial services, ploughing billions of dollars into Greek and Spanish banks, which only a few years ago were bailed out by their governments.

"No serious bank investor would dream of this," he says. "If you are us, you would not be caught dead doing some of these deals."

Mr Flowers has endured some tough years since the financial crisis six years ago. Many of the deals he did before 2008 have suffered heavy losses. The chess enthusiast will not say how the $7bn fund he raised in 2006 has performed, but it is believed to have lost about half its value.

"For our industry, 2008 and subsequent years have been a difficult time," Mr Flowers says in his usual deadpan style. "It has been a different experience to be in the financial services industry than say oil and gas or even metal-benders. It has been one of the most difficult arenas."

Rival private equity executives are quick to write Mr Flowers off, with one saying he has "lost too much money". They point out that key JC Flowers executives have left recently, including David Schamis, who quit in January to join Bob Diamond in setting up the former Barclays chief executive's new venture, Atlas Merchant Capital.

But Mr Flowers, 56, who last September moved back to New York after a spell living in London and hunting for deals amid the wreckage of the eurozone debt crisis, sounds surprisingly bullish about the future.

He says his latest $2.3bn fund is about two-thirds invested and is doing well, rising 40 per cent last year. "We've had almost entirely winners in that fund," he says. "With the pretty good markets in financial institutions we've had recently we are looking at exiting or harvesting a variety of things in this fund."

Since making his name as a dealmaker in Japan in 2000 by earning a reputed profit of as much as $1bn on an investment in Shinsei Bank, Mr Flowers has raised more than $15bn to invest in the financial services sector.

The son of a naval officer and librarian, Mr Flowers's career started at Goldman Sachs, which he joined after graduating from Harvard. He became one of the youngest Goldman partners in history at the age of only 31 in a class that included Lloyd Blankfein, who is now the US bank's chief executive. But Mr Flowers left Goldman after a power struggle on the eve of it going public and struck out on his own by setting up JC Flowers in 1998.

When the financial crisis hit a decade later, Mr Flowers was in his element, running his ruler over such ailing groups as Bear Stearns, Northern Rock and AIG. He told his investors in 2008: "This is the Super Bowl of investment. It's no time to be sitting in the bleachers."

Yet the crisis brought more thrashings than touchdowns. A repeat investment in Shinsei Bank flopped as the shares fell hard. In Germany, Mr Flowers and his co-investors lost most of the €2.3bn they invested in Hypo Real Estate, the mortgage bank, and HSH Nordbank, the shipping lender, when both were bailed out by the state. He suffered a smaller hit from the demise of US broker-dealer MF Global, which was run by his former Goldman colleague Jon Corzine, and in which JC Flowers had bought a stake of about 7 per cent.

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Now things are starting to look up for Mr Flowers. The financial services sector has rallied in recent years as central banks have ploughed vast sums of money into the system, creating an opportunity to sell investments.

In June he completed the first public listing of a British bank on the London Stock Exchange's main market for more than a decade by floating OneSavings Bank, a small business and mortgage lender formerly called Kent Reliance that he bought into in 2010 - although he was frustrated in his plan to acquire other UK building societies.

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His friends in high places include Republican party politicians and Mr Flowers is known in New York financial industry circles for being an active fundraiser for rightwing campaigns.

The billionaire is well known for his taste for buying expensive Manhattan apartments, having set a record at the time with his 2006 purchase of the 20,000 sq ft Harkness mansion on the Upper East Side for $53m, only to sell it for almost a third less five years later.

Despite his recent move back to the US, Mr Flowers says Europe looks the most fertile ground for new deals. "Continental Europe has been the slowest to come back - there are still interesting things there," he says, adding that the European Central Bank's asset quality review and European Banking Authority's stress tests could provide a catalyst.

Mr Flowers's scouring for deals across the globe and his investments in banks in Japan, Europe and the US have given him a unique overview of the post-crisis financial landscape.

JC Flowers has been most active in insurance recently, taking a stake in Eurovita of Italy last year and buying Fidea of Belgium two years earlier. "In some ways insurance has got things we like better than banks," says Mr Flowers, adding: "There's been a widespread phenomenon which is essentially a function of low interest rates and changing capital rules making all the stuff they did beforevery unprofitable or at least not very profitable."

More broadly, Mr Flowers sees an opportunity to develop products that fall outside of what he calls "the four-square box" limiting what loans retail lenders are prepared to provide in the new climate of tougher regulation. "For example, take self-employed people - it's tough to get a mortgage if you are self-employed. It might be that high street banks would have done that in 2007, but they will not do it in 2014. Nonetheless at the right price, there is a business there."

He calls it "amazing" that in countries such as the Netherlands and Japan, "you either qualify for a mortgage or you don't and there is one rate" regardless of which bank you approach. "There is a lot of opportunity to be outside that box, either on credit characteristics or product design."

In the US and UK, he says, it is common for a lender to have higher losses and delinquencies, but to charge more. While in a country such as Japan, default is considered unacceptable. "Part of it is deeply cultural. That is one reason why you don't have the range of products around worse credits in Japan that you have here."

Mr Flowers may have taken some knocks since the meltdown of 2008. But he is bubbling with ideas about how to capitalise on the new opportunities of the post-crisis world. He has until September 2015 to invest his latest fund and even his fiercest rivals would hesitate to bet against him raising a new one.

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