J. Christopher Flowers, managing director and chief executive officer, J.C. Flowers & Co.
J. Christopher Flowers, the eminent private equity investor, sees a lot of potential for new deals in European finance in the aftermath of the coronavirus pandemic.
Chris Flowers: with crisis comes opportunity
There is little question that Covid-19 will have a profound impact on the financial services industry, where Chris Flowers concentrates his investments.
Even before the crisis, European banks had been struggling to make profits against a backdrop of low interest rates and high competition.
As the economy suffers under lockdown measures, the sector will have to contend with even lower interest rates and the prospect of rising credit losses.
In a keynote interview for the The Global Borrowers & Bond Investors Forum — Virtual 2020, Flowers is crystal clear in his diagnosis of the situation.
“The real problem with European banking is negative interest rates,” he tells Ruth Beddows, managing director of GlobalCapital and Euromoney Conferences.
He then lists out a number of secondary concerns, including the lack of an EU banking union, fears about the stability of the euro and, of course, the impact of the pandemic.
But the chairman and CEO of private equity firm J.C. Flowers and Co. is nonetheless upbeat about the prospect of completing new deals in the industry.
“Right now we see the potential for distressed opportunities among European banks, something that we don’t see at all among US banks,” he says. “And, yes, a low price can make a lot of difference.”
There is a similar scope for putting capital to work in insurance companies, which find themselves in a very different predicament to the banks.
The non-life sector in particular is facing what Flowers describes as the “the biggest insured loss ever in the history of insurance”.
Though insurers will argue that many of their business interruption or health policies do not cover the effects of Covid-19, lawyers are already queuing up to bring claims against them.
“Being an investor, when the stock market goes down, you feel bad for what you own but you feel happy for what you are going to buy next,” says Flowers.
“In the same way, for the insurance industry, the losses inflicted are unpleasant but the prospects for new business are very attractive.”
Flowers has plenty of experience investing money in times of economic distress.
He was on hand to draw up high-stakes rescue proposals for various financial firms during the 2008 crisis, as Lehman Brothers teetered on the brink.
The money he put to work around that time has formed an important part of the investment portfolio for his private equity firm.
But the coronavirus crisis will undoubtedly be a very different experience.
Its significance will only be recognised much more gradually, according to Flowers.
“It is not minute to minute or hour to hour,” he says. “It is instead the very difficult job of trying to figure out what is going to happen. How long will this last? What will governments do? What will the effect be?
“Right now, I don’t think the answer is knowable.”