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So many pummelled bank share prices, so many opportunities. Christopher Flowers, contemplating a bid for the UK’s troubled Northern Rock after flirting with Germany’s Landesbanken, is spending $1.8bn for a stake in Japan’s Shinsei Bank.
This takes him back to the lender on which he cut his teeth as a buy-out maestro. Together with Ripplewood of the US, Mr Flowers acquired the then Long Term Credit Bank at a knock-down price in 2000 – a deal which still sets teeth on edge in Japan. Mr Flowers and his co-investors subsequently sold down their stakes by listing the renamed Shinsei in 2003. Mr Flowers has now gone one better. Having sold shares at Y525 each, he and his new consortium are buying them for Y425, potentially building a stake in the bank of just below 33 per cent.
That 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. Mr Flowers, a board member, is well placed to value Shinsei, but the lender is clearly troubled. It is bleeding red ink largely as a result of exposure to consumer finance, after new regulations clobbered profits. Its share price, excluding Tuesday’s bounce, has virtually halved this year; the dividend was scrapped and returns are negative. But Shinsei’s basic problem is that it lacks scale, with just 42 branches and 2m customers in a country dominated by three mega-banks. Thus it is hard to see any elegant turnround that does not involve either asset sales or – surely the ultimate endgame for Japan’s three mid-sized, partially foreign- owned banks – consolidation.
The history of these banks, all of which were toppled by Japan’s financial crisis and controversially ended up in the hands of financial sponsors, makes that a tricky proposition. Shinshei’s latest chapter does little to change perceptions.