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“Decisive Action Today for Success Tomorrow”
14th CLSA Investors' Forum 2007 Hong KongSeptember 17 – 18, 2007
Shinsei Bank, Limited
Rahul GuptaSenior Managing Executive Officer
Chief Financial Officer
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Agenda
Highlights
Key Corporate Imperatives
Three Pillar Business Strategy
Institutional Banking
Consumer and Commercial Finance
Retail Banking
U.S. Residential Mortgage Exposure
Capital Adequacy and Risk Capital
Forecast Fiscal Year 2007
Key Takeaways
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3
4
6
9
16
20
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Page
2
Highlights
Quick return to profitable growth following decisive actions taken during fiscal year 2006
• First quarter net income of JPY31.2 Billion; 62.6% increase over 1QFY2006
Operating performance on track but market uncertainty remains a challenge during fiscal year 2007
• Despite pro-active provisioning, uncertainty relating to Grey Zone claim trends remains an issue
On target to meet forecast for fiscal year 2007 • Excluding one-off gains, first quarter net income represents 33.7% of full
fiscal year 2007 forecast (consolidated basis)
Committed to Sustainable Growth• Shinsei Bank remains committed to delivering sustainable long-term
profitable growth based on a three pillar business strategy
3
Increase ROA to1.5% on Cash Basis1
Target Total Capital Ratio of 12%
Grow Revenue Faster than Expenses
Achieve ROE of 14% on
Cash Basis1
Reduce Expense/Revenue Ratio
< 50%
The Five KeyCorporate
Imperatives ByFiscal Year 2010
Pursuing long-term sustainable growthPursuing long-term sustainable growth
Key Corporate Imperatives
1 Reflects pre-tax return over four years
4
Three Pillar Business Strategy
Customers
InstitutionalBanking1,2
(IBG)47%
Consumerand
CommercialFinance1
(CCF)41%
Risk Management Compliance Corporate Governance Technology Platform
The three strategic pillars are key to Shinsei’s business model
1 Percentage of total revenue contribution for the first quarter ended June 30, 2007, management accounting basis2 Includes revenue of ALM/Corporate/Other
Mar
ket A
ttrac
tiven
ess
Hig
hM
ediu
mLo
w
Competitive Strength
Weak Average Strong
CCF: Build next generation consumerand commercial finance model
IBG: Focus on
profitable customers
RBG: Enhance
customer base and
profitability
RetailBanking1
(RBG)12%
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Three Pillar Business Strategy:Challenges and Opportunities
Intense competition
Talent war
Market turmoil
Intense competition
Talent war
Market turmoil
Leveraging innovativeness and synergies to turn challenges into opportunities
Institutional Banking
Consumer and Commercial Finance Retail Banking
Leverage global/local partnerships
Leverage Shinsei technology
Market turmoil
Leverage global/local partnerships
Leverage Shinsei technology
Market turmoil
Grey Zone claims
Credit cost control
APLUS business transformation
Grey Zone claims
Credit cost control
APLUS business transformation
Establish next generation ShinpanLeverage synergies with Retail Banking business
Establish next generation ShinpanLeverage synergies with Retail Banking business
Increasing competition
Limited physical presence
Increasing competition
Limited physical presence
Non-organic expansion of customer base and networkLeverage synergies with consumer finance business
Non-organic expansion of customer base and networkLeverage synergies with consumer finance business
Challenges
Opportunities
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Revenue Breakdown by Products1
JPY BN
Revenue Breakdown by Products1
JPY BN
Institutional Banking:Revenue Breakdown
IBGCCF
RBG
Diversified product revenue improves growth stability
1 Management accounting basis2 Includes balance sheet and specialty finance lending activities
4 Mainly includes revenue of Shinsei Trust, corporate advisory and asset management, including gain on BlueBay investment of JPY 11.6Billion in fiscal year 20063 Includes revenue of private equity, real estate principal investment and corporate revitalization activities
20.8
6.3
7.8 5.8
10.7
12.6 12.9
11.215.8 14.9
17.114.6 17.9
20.118.9
20.2
17.816.7
31.4
12.8
2.6 8.35.0
7.70.0
20.0
40.0
60.0
80.0
100.0
120.0
FY2004 FY2005 FY2006
4.64.76.06.33.94.8
4.4
5.1
1.7 4.91.30.2 1.52.4
1.54.1
0.0
20.0
40.0
60.0
1QFY2006 1QFY2007
Non-recourse Loans
Forex, Derivatives, Equity Related
Credit Trading
Corporate Loans 2
Principal Investments 3
Other Capital Markets
Securitization
Other 4
117.3116.7
97.0
24.533.6
12 months
3 months
Rising loan demand and asset pricesproduced strong
first quarter results
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Institutional Banking:Products Mix and Strategy
High
Low
AdvisoryBasic Banking Real EstateFinancing
WealthManagement Capital Markets
LargeSmall
Corporate Business Solutions(Credit Trading, Revitalization
Business, Principal Investments,and others)
Growth Potential
Cash Flow Generation
AssetManagement
Shinsei Trust
Products Mix and Growth PotentialsProducts Mix and Growth PotentialsGrowth Drivers:
Capital Markets: Boosting resources to provide more solutions to customers
Real Estate Financing:Provide full range of services using our expertise
Asset Management:Leveraging our relationships with global fund providers and local distribution networks
Wealth ManagementUnique company owner/founder model
AdvisoryLeveraging our knowledge and experience to provide additional value to existing customers
Aim for sustainable performance through existing and new franchise growth
IBGCCF
RBG
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Focus on building strong relationships with profitable customers
• Emphasis on enhancing customer profitability by promoting 3 products per customer compared to the current 1.3 product penetration ratio
• Discipline in Customer Relationships
– Target of 1,000 profitable relationships: Currently over 600 profitable relationships
– Partner with regional financial institutions
– Acquire new corporate clients
• Become primary provider of capital markets solutions
• Seek further opportunities in public sector, asset management, and M&A advisory areas
• Implementation of priority IT projects
• Emphasis on enhancing customer profitability by promoting 3 products per customer compared to the current 1.3 product penetration ratio
• Discipline in Customer Relationships
– Target of 1,000 profitable relationships: Currently over 600 profitable relationships
– Partner with regional financial institutions
– Acquire new corporate clients
• Become primary provider of capital markets solutions
• Seek further opportunities in public sector, asset management, and M&A advisory areas
• Implementation of priority IT projects
• Sharply increase number of profitable customers
• Actively manage balance sheet
• Increase revenue with new franchise growth
• Generate expense-to-revenue ratio of less than 40%
• Sharply increase number of profitable customers
• Actively manage balance sheet
• Increase revenue with new franchise growth
• Generate expense-to-revenue ratio of less than 40%
ActionsActionsObjectivesObjectives
Institutional Banking:Key Actions in Fiscal Year 2007
IBGCCF
RBG
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Revenue Breakdown by Products1
JPY BN
Revenue Breakdown by Products1
JPY BN
Gaining momentum following decisive actions to address industry changes
1 Management accounting basis, each product sum does not add up to total due to rounding
Consumer and Commercial Finance:Revenue Breakdown
85.193.2
25.0
7.0
11.7
-6.0
36.2
22.8
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
FY2004 FY2005 FY2006
Showa Leasing
APLUS
Other Subsidiaries(including Shinki, an affiliate)
119.7 112.2
43.2
22.5
2.4 1.5
23.6
5.7 7.2
-20.0
0.0
20.0
40.0
60.0
1QFY2006 1QFY2007
31.8 31.3
12 months
3 months
APLUS remains themost significant
component of CCF revenue
IBGCCF
RBG
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Micro BusinessMarket
Micro BusinessMarket Large
Corporations
LargeCorporationsMiddle MarketMiddle MarketSME MarketSME Market
Consumer and Commercial Finance:Market Focus by Subsidiaries and an Affiliate
Broad coverage of customers and products
ConsumerMarket
ConsumerMarket
Consumer CreditConsumer CreditConsumer Credit
Property FinanceProperty FinanceProperty Finance
Commercial FinanceCommercial FinanceCommercial Finance
Consumer FinanceConsumer FinanceConsumer Finance
Installment sales credit, loans and credit cards to consumers via merchant partners
Unsecuredbusiness finance
Home equity loans and financing forsmall property developers
Unsecured lending
IBGCCF
RBG
General and auto leasing/installment finance
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Vision:
Strategic Direction:
Provide credit skills and services to support our merchant partners
Offer valued state-of-the art infrastructure, credit/collection skills, and service to our merchant partners
Develop a single view (product aggregation) of each individual customer generated through our merchant partner channel
Rational, measured approach to acquisitions or partnerships
APLUS will become the next generation Shinpan, providing superior service for consumer credit and collections operations to our merchant partners through best-in-class infrastructure and IT capability
Consumer and Commercial Finance:APLUS - Strategic Direction
Focused strategic direction to be the next generation Shinpan
IBGCCF
RBG
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Products Mix and Growth PotentialProducts Mix and Growth Potential
Consumer and Commercial Finance:APLUS - Products Mix and Strategy
High
Low
Creditcards
Consumer loans
LargeSmall
Installments
Settlementservices
Leveraging APLUS’ strengths to become a next generation Shinpan
Cash Flow Generation
Growth Potential
Products Strategy:
Rebuild back office + technology platform using Shinsei capabilities
Target high level of automation
Differentiate APLUS from traditional Shinpan through products + process solutions for merchant partners
IBGCCF
RBG
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APLUS Grey Zone Claims and Provisions
JPY BN
APLUS Grey Zone Claims and Provisions
JPY BN
1.10.70.60.40.3
1.9
10.3
2.4
9.710.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1QFY2006 2QFY2006 3QFY2006 4QFY2006 1QFY2007
Grey -Zone ref und claims (consolidated)
Grey -Zone prov isions (consolidated)
Closely watching grey zone claim situation to apply appropriate level of provisions
Developing “White Zone” portfolioDeveloping “White Zone” portfolio
New customers• Strict observance of December 2006
Credit Standard for careful selection of customers
• Introduction of “white zone” interest rates
Existing customers• Discern credit status and other
requirements
New customers• Strict observance of December 2006
Credit Standard for careful selection of customers
• Introduction of “white zone” interest rates
Existing customers• Discern credit status and other
requirements
Consumer and Commercial Finance:APLUS - Grey Zone Claims and Provisions
IBGCCF
RBG
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Trend of Leasing Assets and Installment Payments Receivable1
JPY BN
Trend of Leasing Assets and Installment Payments Receivable1
JPY BN
1 All figures presented above are Showa Leasing’s disclosed non-consolidated financials (numbers rounded)2 SARL: Showa Auto Rental & Leasing Co., Ltd.
140 139 137160 161 174
449 435 428464
290302303291296309
464464
0
200
400
600
Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07
Leasing Assets Installment Payments Receivable
After Shinsei’s Acquisition
Source: Showa Leasing
Consumer and Commercial Finance:Showa Leasing
Enhancing customer base and diversifying revenue sources
IBGCCF
RBG
Products Strategy:
Japanese Lease & Installment Sales: core products and industry standard; differentiation via risk-based pricing and relationshipsAuto Leasing: core offering via SARL2 subsidiary; typically includes bundled maintenance and other services with lease contractOperating Leases: growing as JGAAP treatment of Japanese leases changes; requires skill to manage equipment residual values; includes tax-oriented Japan Operating Lease nicheLoan Products: two approaches: secured loans by movable assets or receivables such as medical insurance; and unsecured SME loans (via Shinsei Business Finance)Guarantees: extending solutions to partners via guarantees on secured movable equipment loans
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Transformation of businesses to optimally manage risk and deliver growth
• Transformation of the business model at APLUS
• Deliver OBP growth across all business lines
• Manage risk for optimal return
• Transformation of the business model at APLUS
• Deliver OBP growth across all business lines
• Manage risk for optimal return
1 Customer Relationship Management
• Accelerating APLUS transformation to become leading Shinpan partner
– Reconfirm core strategy of B2B2C business model with merchants as primary customers (fewer but better merchant partners)
– Redefine/Expand banking partners as new origination partners for secured and unsecured ”white zone”customer finance
– Improve B2C marketing strategy including better CRM1
and risk selection
• Continue to screen M&A opportunities selectively under industry consolidation
• Accelerate the introduction of a new flexible and scalable operating platform
• Apply Shinsei compliance standards to monitor risk control
• Accelerating APLUS transformation to become leading Shinpan partner
– Reconfirm core strategy of B2B2C business model with merchants as primary customers (fewer but better merchant partners)
– Redefine/Expand banking partners as new origination partners for secured and unsecured ”white zone”customer finance
– Improve B2C marketing strategy including better CRM1
and risk selection
• Continue to screen M&A opportunities selectively under industry consolidation
• Accelerate the introduction of a new flexible and scalable operating platform
• Apply Shinsei compliance standards to monitor risk control
ActionsActions
Consumer and Commercial Finance:Key Actions in Fiscal Year 2007
ObjectivesObjectives
IBGCCF
RBG
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Revenue Breakdown by Products1
JPY BN
Revenue Breakdown by Products1
JPY BN
Revenue diversification one key to future performance
1 Management accounting basis, each product sum does not add up to total due to rounding
Retail Banking:Revenue Breakdown
1.9 3.2 2.6
7.4 9.3
14.6
16.5
18.39.6
6.0
13.312.9
0.0
10.0
20.0
30.0
40.0
50.0
FY2004 FY2005 FY2006
Deposit and Debentures Net Interest Income
Loans
Deposit and Debentures Non-Interest income
Asset Management
1.2 1.33.0
3.7 0.7
2.14.03.3
0.0
10.0
20.0
1QFY2006 1QFY2007
42.4
36.137.5
10.5 9.1
12 months
3 months
Increasing revenue diversification to reduce
dependency on structured deposits
IBGCCF
RBG
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Growth in Housing Loans
JPY BN Customers
Growth in Housing Loans
JPY BN Customers
1 Assets under management2 Structured deposits, foreign currency deposits and mutual funds
Continuous growth in customer base, AUM and loans
Growth in AUM1 and Number of “PowerFlex” Accounts
JPY TN Accounts (Thousands)
Growth in AUM1 and Number of “PowerFlex” Accounts
JPY TN Accounts (Thousands)
0.0
1.0
2.0
3.0
4.0
5.0
Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-070
500
1,000
1,500
2,000
2,500
Total AUM (lhs) Number of accounts (rhs)
Retail Banking:Expanding Retail Franchise
0
100
200
300
400
500
600
Mar-04 Mar-05 Mar-06 Mar-070
5,000
10,000
15,000
20,000
25,000
30,000
Balance (lhs) Housing Loan Customers (rhs)
IBGCCF
RBG
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Products Mix and Growth PotentialProducts Mix and Growth Potential
Value added products key to enhancing customer profitability
Retail Banking:Products Mix and Growth Potentials
High
Low
LargeSmall
Powered One type structured deposits
Yen time deposit
Foreign mutual fundAnnuity/Insurance
Debenture
Domestic mutual fund
Foreign currency deposits
Other structured deposits
Mortgage loan
Consumer loanCash Flow Generation
Growth Potential
Product strategy to boost profitability:
Deposits:Important source of funding for the Bank but decreasing our dependency on structured deposits
Mutual Funds:Leveraging relationships with global fund providers to offer best in class product range
Annuity/Insurance:Enhancing consultation and internet offerings to promote insurance products
Mortgage Loan:Continued volume growth boosting retail asset base
Consumer Loan:Consumer loan product offering to grow retail asset base
IBGCCF
RBG
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1 Shinsei Financial Center
Increase customer focus to improve profitability
• Improve customer relationships and increase total assets under management
• Loan and asset growth and development
• Carefully manage expenses and employ cutting-edge IT solutions
• Improve customer relationships and increase total assets under management
• Loan and asset growth and development
• Carefully manage expenses and employ cutting-edge IT solutions
• Future relationship with customers
– Enhance core customer relationship management
– Provide intensive consultation services
– Expand additional special services for core customers
• Enhance mortgage loan sales process
– Enhance agility of credit review process
– Further speed up application screening and contract procedures
– Improve SFC1 sales framework and staff skills in order to explore and follow up on mortgage prospects
• Hold down fixed expense and control variable expense increase
• Return to profitability in fiscal year 2007
• Future relationship with customers
– Enhance core customer relationship management
– Provide intensive consultation services
– Expand additional special services for core customers
• Enhance mortgage loan sales process
– Enhance agility of credit review process
– Further speed up application screening and contract procedures
– Improve SFC1 sales framework and staff skills in order to explore and follow up on mortgage prospects
• Hold down fixed expense and control variable expense increase
• Return to profitability in fiscal year 2007
ActionsActionsObjectivesObjectives
Retail Banking:Key Actions in Fiscal Year 2007
IBGCCF
RBG
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U.S. Residential Mortgage Exposure
Limited exposure to U.S. sub-prime loans
U.S. Residential Mortgage Exposure Breakdown
US$ MN
U.S. Residential Mortgage Exposure Breakdown
US$ MN
248 (JPY 29.5 BN1)
52 (JPY 6.1 BN1)
154 (JPY 18.3 BN1)
Includes a minority portion of sub-prime loans
Exposures to U.S. entities whose primary business relates to residential mortgage finance and related services
Fund investment whose underlying assets are predominantly composed of U.S. residential mortgage-backed securities
Investment grade U.S. residential mortgage-backed securities
As of June 2007
Less than 0.5% of total consolidated assets
→ Recorded US$29 Millionmark-down related to investment (already reflected in consolidated P/L as of the end of March and June 2007)
1 US$ = 118.99 (as of July 31, 2007)
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Regulatory Capital Ratio
%
Regulatory Capital Ratio
%
16.2%
20.1%21.1%
11.7%
15.5%
13.1% 13.0%
7.9%8.1%7.0%
14.3%
10.3%
0%
5%
10%
15%
20%
25%
Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Jun-07Tier 1 Ratio Total Capital Ratio
Capital Adequacy and Risk Capital
1 Other risks are comprised of operational risk (JPY22 Billion), liquidity risk (JPY19 Billion), interest rate risk (JPY 5 Billion) and market risk (JPY4 Billion)
2 Others include Risk Capital utilization in Retail Banking and ALM/Corporate/Other
Proactively managing strong capital base
Risk Capital Allocation by Risk Category and by Business (as of March 31, 2007)JPY BN
Risk Capital Allocation by Risk Category and by Business (as of March 31, 2007)JPY BN
InstitutionalBanking
291Credit Risk
234
Tier 1Capital
620
Consumer andCommercial
Finance119
StructuredCredit
and OtherInvestment Risk
170
Others 46Other Risks 51
ExcessCapital
163
ExcessCapital
163
0
100
200
300
400
500
600
700
1 Deferred Tax Assets
1 2
9/04: Acquisition of APLUS
3/05: Acquisition of Showa Leasing
8/06: Repurchase of public fund preferred stock
Target Total Capital Ratio(12%)
Target Tier 1 Ratio (7-8%)
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Ordinary business profit expected to grow in all three business pillars
Net income forecast for fiscal year 2007 is JPY 72.0 Billion reflecting year-on-year growth excluding charges relating to consumer finance business
Return to profitability in fiscal year 200735.3
83.072.0
-60.9-70.0
-20.0
30.0
80.0
130.0
Net Income Cash Net Income
Consolidated Forecast
FY2006 Actual FY2007 Forecast
(JPY BN)
Return to profitability
Forecast Fiscal Year 2007
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Key Takeaways
Institutional Banking• Focus on profitable customers and partnerships• Expand businesses• Strengthen capital markets capability
Consumer and Commercial Finance• Accelerate APLUS transformation• Deliver top line growth across all business lines• Manage risk for highest return
Retail Banking• Enhance customer relationships and profitability• Expand loan and asset business• Manage expenses
Committed to Sustainable GrowthShinsei Bank remains committed to delivering sustainable long-termprofitable growth based on a three pillar business strategy
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Disclaimer
These slides contain statements that constitute forward-looking statements, plans for the future, management targets, etc. relating to the Company and its subsidiaries. These forward-looking statements are based on current assumptions of future events and trends, which may be incorrect and are subject to risks and uncertainties.
Actual results may differ materially from those in such forward-looking statements as a result of various factors.
Unless otherwise noted, the financial data contained in these materials are presented under Japanese GAAP1. The Company disclaims any obligation to update or to announce any revision to forward-looking statements to reflect future events or developments. Unless otherwise specified, all the financial information is shown on a consolidated basis.
Information concerning financial institutions other than the Company and its subsidiaries are based on publicly available information.
These materials do not constitute an invitation or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.
1 Generally Accepted Accounting Principles
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For further questions, please contact:
Shinsei Bank, LimitedGroup Investor Relations DivisionTel: +81-3-5511-8303Fax: +81-3-5511-5505IR URL: http://www.shinseibank.com/investors/en/ir/
Raymond Spencer, General [email protected]
Yasuhiro Fujiki, Deputy General [email protected]
Hiroshi Ishii, Deputy General [email protected]
Contact information for Investor Relations
