Differentiation Through Merrill Lynch Japan Conference Innovation - - PowerPoint PPT Presentation

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Shinsei Bank: Institutional Banking Group Evolution

Merrill Lynch Japan Conference September 9, 2005

Differentiation Through Innovation

Thierry Porté President and CEO Japan Investment Conference 2006 January 20, 2006

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The following materials may 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. Actual results may differ materially from those in the statements as a result of various factors. Unless otherwise noted, the financial data contained in these materials are presented under Japanese GAAP. 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 financials are shown

• n 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.

Forw ard Looking Statement

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Differentiation Through Innovation Agenda

• 1. A different kind of Japanese Bank
• 2. Institutional Banking
• 3. Consumer and Commercial Finance
• 4. Retail Banking
• 5. Conclusion

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More Global than the Local Banks More Local than the Global Banks

Shinsei is now uniquely positioned in Japan as a hybrid commercial and investment bank. We have the relationships and lending capabilities of traditional Japanese banks AND a line of products on par with those of global banks in Japan.

Number of Customers

Variety of Products

Mega Banks

Hybrid Commodity Small Large

Regional Banks Foreign Banks Old LTCB

Shinsei

Old LTCB

Going Forward…

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3 Pillar Strategy

Our strategy is based on 3 core customer-centric business lines supported by world-class infrastructure, risk management and corporate governance

Customers

Institutional Banking Consumer and Commercial Finance Retail Banking

Consumer and Commercial Finance Business scale increase via acquisitions Implementation of Shinsei’s expertise and know-how Synergies with Institutional / Retail Banking businesses Institutional Banking Unique hybrid commercial and investment banking model Value-added solutions to targeted customers Integrated teams of product specialists and relationship managers for quick and efficient delivery Retail Banking Attractive and innovative value proposition Strong brand development Highly efficient bricks and clicks distribution model

Risk Management Corporate Governance Modern IT Platform

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Shinsei Solutions to Meet Customer Needs

Institutional Banking Consumer and Commercial Finance Retail Banking

Assets Liabilities

Securitization Investment Trust Credit Trading M&A Advisory Forex, CP, Derivatives Commitment Line Private Equity Property Finance Loan Syndication NRL, Project / Leveraged Finance Loans, Leasing Structured Depo Business Reorganization Asset Management Risk Management Cost Effective Funding Balance Sheet Improvement

Institutional Customers

Business Expansion, M&A

Institutional Customers

Higher Returns Lower Costs Ease of Use Convenience Pre-selected Range of Products

Individual Customers Individual Customers

Customer Needs Shinsei Solutions

PoweredOne Structured Depo 24x7 Free ATM Services PowerSmart Flexible Housing Loan Extended Banking Hours, Online Banking Investment Trusts, Annuities

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Shinsei Corporate Governance

Highly transparent management and strong monitoring function

Adoption of company with committees board model from June 2004 Clear separation of business execution function from strategy development and monitoring function 17 Directors, including 13 outside directors 14 Statutory Executive Officers, including two directors

Three Committees (Nomination, Compensation, Audit) comprised of a majority of outside directors Effective practice of internal audit

Report to both CEO and Audit Committee, independent of the audited business units Received the Institute of Internal Auditors Japan (IIAJ) Chairman's Award in September 2005

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Equal opportunities employer Seniority-system abolished Specialized skills and experience promoted Continuous learning culture Active mid-career hiring Unique blend of backgrounds and cultures

Unique Blend of Talents

Shinsei staff as of December 2005

Shinsei Human Capital

Ex-LTCB: 50% Mid-career: 40% New Grads: 10% Male vs Female: 53% vs 47% Japanese vs non-Japanese: 94% vs 6% % of female managers: 16%

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Low cost, standard off the shelf components Leveraging the internet to move work to the lowest cost location

possible

Collaborating with virtual teams in India, Singapore, Malaysia Standard re-usable building blocks to ensure speedy and timely

delivery

Totally paperless process Control by machines to reduce friction in operations Standard processes to improve productivity Leverage technology to make process repeatable and scalable

Shinsei IT

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Shinsei International Strategy

• I. Earnings Quality and

Diversification

• Broaden the Shinsei

franchise

• Generate opportunistic P&L
• II. Capital Deployment
• Deploy a disciplined amount
• f Risk Capital, and diversify

earnings stream

• Monetize Country Risk

capacity (unused resource)

• III. Ongoing Development
• Maintain a continuing

“window” on financial technology.

• Build affiliations with “like-

minded” institutions, for synergy, including for Japan

• pportunities.

Rationale Investments Advisory Acquisitions Partnerships International Opportunities Filter / Trigger

Core Competencies

Japanese Client and Market Knowledge Risk Assessment and Asset Valuation Financial and Portfolio Investments Business Transformation Technology and Process Management

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Differentiation Through Innovation Agenda

• 1. A different kind of Japanese Bank
• 2. Institutional Banking
• 3. Consumer and Commercial Finance
• 4. Retail Banking
• 5. Conclusion

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Relationships and Products

Corporates Financial Institutions Real Estate Public Sector

Universe of Relationships

Credit Trading Non-recourse Lending Securitization Asset Management Wealth Management Capital Markets Distribution Loan Syndication New Securitization Asset Classes

Stable Base Growth Areas

13 Key Priority Corporate

Account Segmentation Strategy

Custom tailored, per client perspective Short list of core clients Industry and needs focused organization developing the rest

• f the business

Principles of the New Organization Previously

• No differentiation in terms
• f time spent on

customers by RMs

Industry Segmentation Only

Industry 1 Industry 2 Industry 3 Industry 4 Industry 5 Industry 6

# of Customers Previously

• 4,000+ customers

covered by 200 RMs

Currently

• 2,000 customers

covered by 164 RMs (Spend 90% of Time Here) and the remaining 2,000 + customers are covered, but not as closely (Spend 10% of Time Here)

Segment the customer base and ensure that each relationship receives the appropriate level of service and time

Relationships – Corporates

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Relationships – Real Estate Finance

Coverage Real Estate Hotel Customer Needs Shinsei Solutions Construction

Corporate Loan

Stable and flexible funding Improve Balance Sheet Expand Business Domain

Syndicated Loan NRL AMD & Wealth Management Derivatives REIT Finance M&A Securitization (CMBS/RMBS)

Credit Product Team Structured Product Team Other Product Unit

• Real Estate Finance Division integrated with the real estate, construction, and hotel-related Corporate

Banking Business Divisions, to form comprehensive Real Estate Finance Sub-Group (REFS).

• We can now increase product penetration into existing accounts and increase new accounts through

development of innovative schemes (e.g. nursing home finance, apartment loan financing, MBS, etc.)

Unique needs of this sector require a completely integrated coverage approach

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Affiliated Corporations Municipalities

Constant raising of cheap funds Diversify fund-raising sources Efficient balance sheet

Government Agencies

Bilateral Loans Syndicated Loans Non-Recourse Loans Bond Issuance Securitization PFI Ultra-long term Funds

Created Public Sector Finance Sub-Group (PSF) in May 2005 PSF oversees, and centrally coordinates, the activities of all Public Sector RMs, both in the Headquarters and in the various branches

Relationships – Public Sector Finance

Current Solutions Growth Areas

Over the next 10 years we will see more innovation in this sector than anywhere else in Japan. We have a great brand and are positioning to capitalize on it.

Customer Segments Customer Needs Shinsei Solutions

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Market Background

Funding Needs Needed to Reconstruct

the aging hospital facility

Needed to Change the

equipment for new bed standard

Improving the credibility of

hospital accounting

Implement of Hospital

accounting standard

Tendency to accept an

external auditing

Changing the banking

standard of hospital valuation

From only secured by

real estate to the validity

• f the business planning

Healthcare Market

Nursing Care Corps

• No. of Firms

Healthcare corps with nursing facilities Dental Clinics Healthcare Corporations Clinics Hospitals

3 3 1 6 9 9 2 6 3

Total 164,490 Total (¥T) 35 Limited Competition

Aozora Bank

Alliance with consulting firm Mediva

Tokyo Star Bank

• NRL to nursing care corp.

RBS

Whole Business Securitization

Orix

Wide range of businesses but with small transaction sizes

City/Regional Banks

Bank Loans

Still a wide-open battlefield

Relationships – Health Care

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Shinsei Bank’s unique Asset Management business model

【 What we do】

Carefully analyze the investment needs of a client to find the optimal solution for the clients’ risk/return requirements

STEP 1

Identify “best-in-class” portfolio managers among the global universe of managers to solve the investment problems of our client

STEP 2

Package the product in an investor-friendly format in compliance with legal/tax/regulatory requirements

STEP 3 【 Advantages for Shinsei Bank】 By focusing on distribution, we… 1.Avoid cost of maintaining a portfolio management

• peration

2.Reduce operational risk 3.Reduce management complexity 4.Can fire poor managers and replace them with better ones 【 What we don’t do】 Unlike most competitors, we do NOT manage client assets ourselves, because… 1.We do not believe that we,

• r any other asset

management operation is able to generate superior performance in every asset class.

• 2. We do not have internal

pressure to sell what we produce – so, there is no conflict of interest.

New Solutions: Asset Management

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Institutional Banking Group Retail Banking Group

Wealth Management JV

A JV between Institutional Banking Group (RBG) and Retail Banking Group (RBG) yields a number of synergies:

Customer focus: Can service the needs of company owners/founders as well as

wealthy individuals

Full access to all of the bank’s products and clients RM/Sales teams: Provides natural linkage between retail sales and corporate RMs Infrastructure: Provides ability to leverage existing infrastructure (e.g. risk management,

IT, compliance, securities and operations)

Physical Branch Network: Maximizes use of regional presence Internet Capability: Leverages RBG’s internet services to serve JV customers and

corporate customers

New Solutions: Wealth Management

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New Solutions: New Securitization Asset Classes

ABS Market will grow accompanied with

WBS

We will continue to be the top player in the

new market

Achievements

Established a presence in the market as one of the top players Asset Class: RMBS, CMBS, CLO, Consumer Loan, Credit Cards, NPL Lease etc. FY 2000 – 2004 Total arrangement volume exceeded JPY 1.7 trillion (72 transactions)

New Activities

Market is shifting from ‘traditional

securitization’ to ‘new frontier’

Currently working on transactions: Whole

Business Securitization (WBS)

• Hospitals
• Pachinko Parlors
• Nursing House
• Broad Band Telecom

Financial Instrument repackage is a

boost

New Securitization (WBS) Traditional Securitization

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Institutional Banking: Strong Grow th w ith Varied Revenue Mix

Revenue Breakdown by Products

1HFY2004 vs 1HFY2005

JPY Bn 49.5 52.6

Non-recourse loans Forex, Derivatives, Equity related Credit Trading Corporate Loans*2 Principal Investment Other Capital Markets*1 Securitization

1.3 1.4 3.3 3.3 3.7 4.3 8.2 8.1 7.1 8.6 9.2 5.9 7.4 9.4 8.9 11.2 10 20 30 40 50 60

1HFY2004 1HFY2005

Note: Management accounting basis

Non-recourse Real Estate Finance

Revenue increase of 26.1% Balance up 14.4% to JPY 851.8 billion 80 new deals closed

Corporate Lending

Revenue increase of 21.4% Loan balance grew 6.8% to over JPY 2.6 trillion

Securitization

Concluded 10 new deals with JPY 235.6 billion total issuance

Other

Foreign exchange, derivatives and equity related capital markets revenue increase of 28.3%

Highlights during 1HFY2005

*1: Significant portion of this income relates to business activities in Shinsei Securities and Shinsei Trust *2: Includes balance sheet and specialty finance loans

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Differentiation Through Innovation Agenda

• 1. A different kind of Japanese Bank
• 2. Institutional Banking
• 3. Consumer and Commercial Finance
• 4. Retail Banking
• 5. Conclusion

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Consumer Solutions Small & Medium Business Solutions

Sales Force Mgmt Brand / PR Underwriting Risk Data Analytics LT Migration To Flexible And Open Architecture People Development Career Mobility Platform Expansion Major Alliances Funding Expertise Expense Control

Shinsei Delivers Value Through a Dedicated Team Aligned by Functional Expertise

Specialty Property Solutions

FINANCE RISK MARKETING IT/OPERS HR M&A

CONSUMER & COMMERCIAL FINANCE

(Shinsei Sales Finance) (Shinki)

(APLUS)

(Showa Leasing) (Shinsei Business Finance) (Life Housing Loan) (Shinsei Property Finance)

We Do Not Operate As a Traditional “Affiliates Management Department”

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Revenues Expenses Tax Income

Earnings Grow th to Come from Execution on the “Basics”

Stabilize core revenue sources In-depth profitability analysis Optimize product and channel mix ST cost basics LT infrastructure migration ST & LT dramatic COF improvement Stabilize credit & ensure discipline Fully utilize NOL position over near term

SG&A Funding Credit Volume Margin Fees

Near-Term Earnings Growth From Lower Cost Business Model…Long Term Growth From Continuous Improvement From Front To Back

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Many Potential Synergies Within Consumer & Commercial Finance Business

Capital Markets Cross-Sell (credit card, personal loan, merchant introduction) IT Consumer Auto Lease Consumer/Commercial Vendor Programs Property Lending Joint Market Research Operational Synergies SHINSEI BANK SHOWA LEASING

SHINSEI PROPERTY FINANCE LIFE HOUSING LOAN

SHINKI

SHINSEI SALES FINANCE Treasury / Capital Markets Cross-Sell IT Consumer Auto Lease Consumer/Commercial Vendor Programs Real Estate Leasing Insurance Tie-up Unsecured SME Lending Cross-Sell / Bundled Solutions APLUS SHINSEI SALES FINANCE SHINKI

SHINSEI PROPERTY FINANCE LIFE HOUSING LOAN

SHINSEI BANK

SHINSEI BUSINESS FINANCE

Many Potential Revenue & Operating Synergies Identified within CCF…Systematic Execution Only After Ensuring Realizable Gains & Customer Continuity

APLUS Showa Leasing

Early identifiable gains from synergy Targeted work/cooperation begun

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Consumer and Commercial Finance: Significant Grow th Contributor

Note: Management accounting basis

Contribution by Subsidiaries

JPY Bn

APLUS Showa Leasing Other subsidiaries

3.3 5.0 12.1 40.4 10 20 30 40 50 60

0.3 1.7 6.7 19.2

1H FY2004 1H FY2005

Revenue OBP Revenue OBP Note: Management accounting basis

Highlights during 1HY2005

APLUS and Showa Leasing acquisitions have transformed CCF composition

APLUS

APLUS revenue of JPY 40.4 billion and OBP of JPY19.2 billion represented 70.1% and 69.1% of total CCF business revenue and OBP respectively APLUS declared first dividend for 11 years

Showa Leasing

Showa Leasing revenue of JPY 12.1 billion and OBP of 6.7 billion represented 21% and 24.1% of total CCF business revenue and OBP respectively

Other

Good performance at other CCF subsidiaries during the 1st half of FY2005

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Differentiation Through Innovation Agenda

• 1. A different kind of Japanese Bank
• 2. Institutional Banking
• 3. Consumer and Commercial Finance
• 4. Retail Banking
• 5. Conclusion

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“Shinsei Style”

A set of values that defines Shinsei in customer terms

Accessible - Always available when I need it / [24 x 7] Easy & convenient - Is easy to deal with - banking that ‘wows’ Responsive - Always understands / anticipates my needs Delivers value - Offers the best solution for me

Overall theme: Empowerment

(Customers manage and control their banking needs)

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Accessible – Extended Hours

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Accessible - Internet Bringing the bank to your home—24 hours a day

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Easy & Convenient – No Waiting

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Responsive - Understands My Needs

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Delivers Value – The Best Solutions

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Customers Have Recognized the Difference Customers Have Recognized the Difference

Ranked # 1 in Customer Satisfaction for two consecutive years in Nikkei’s Financial Institutions Survey

Ogaki Kyoritsu Bank 6th eBank 5th Japan Net Bank 4th Citibank 3rd Johnan Shinkin Bank 2nd 1st

2004

Bank of Tokyo Mitsubishi 6th eBank 5th Japan Net Bank 4th Ogaki Kyoritsu Bank 3rd Sony Bank 2nd 1st

2005

Nihon Keizai Shimbun Aug. 24, 2005 Nihon Keizai Shimbun Oct. 5, 2004

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Customer Focus is Expressed Through the Brand Proposition “Color your life”

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“Color your life” Concept

SHARE

Information, dreams, worries, aspiration, future… with our colleagues, customers, families

CARE

Respond flexibly, speedily, hospitably, based on customers’ needs

“IDEA-FULL”

Proposals that say, “Why didn’t someone think of this before?”

WAKUWAKU

Exhilarating at every contact

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Launching "Color your life"

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Brand Aw areness is Amongst the Highest

In the 4 years since new retail banking business launch, brand awareness on Shinsei Bank has significantly increased as compared with the other competitors, and reached 96% in June 2005

10 20 30 40 50 60 70 80 90 100 Shinsei Bank Citibank Sony Bank BOTM 2001.11 2002.06 2003.06 2004.07 2005.06

Source: Asatsu-DK Survey

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“Bricks and Clicks”

Remote Distribution Physical Distribution

PowerDirect PowerCall ATMs BankSpot Financial Center Platinum Center

Empowering the customer – they choose the channel

Transaction Consultation Revenue per transaction Cost per transaction

For Shinsei – reach and efficiency

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Customer Acquisition

65% of our customers open accounts through remote channels

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 Q2/2001 Q3/2001 Q4/2001 Q1/2002 Q2/2002 Q3/2002 Q4/2002 Q1/2003 Q2/2003 Q3/2003 Q4/2003 Q1/2004 Q2/2004 Q3/2004 Q4/2004 Q1/2005 Q2/2005

Remote SFC

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Solutions for Our Customers

“IDEA-FULL”

Proposals that say, “Why didn’t someone think of this before?”

Simple and easy to use Customers transact on their own Covers a wide range of risk and tenor preferences, a mix of currencies and instruments (e.g. deposits, mutual funds and annuities) More complex products are available to sophisticated customers (e.g. hedge funds, structured products) A strong sales process backs each offering

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“Our People Are the Difference”

Career Excitement Center

Winning the Talent War “We hire customer focused people, and train the daylights out of them”

Shinsei Business School

April 2004 Sales Management Management & Leadership Sales Skills Solutions

Branch Training

90 Player/trainers Sales Skills daily Innovative Fridays

Internal Communications

Shinsei Daily Celebration Daily Sales Call Daily “Why Shinsei?” Color Your Life e-letter Weekly Power Go National Monthly & Qtr Sales

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Retail Banking: Continued Success

Stable and increasingly diversified revenue growth during 1HFY2005

Deposit related and forex related fees including structured deposit fees revenue decreased JPY1.5 billion to JPY 9.8 billion due mainly to favorable market conditions for structured products last year Net fund transfer revenue increased 13.1% due to continued growth in retail deposits and better spreads on USD balances Loan revenue increased significantly due to a 36.4% growth in loan balances to reach JPY 420.3 billion by period end. Fee revenue from mutual funds and variable annuities increased 16.6% to JPY 3.2 billion Over 247,000 new retail customer accounts were acquired during the first half of the year, 65% through remote channels Retail accounts exceeded 1.5 million

Net Funds Transfer Revenue (1) Deposit Related and Forex Fees

Note: Management accounting basis

Loans

21.5 21.2

(1) Related to customer deposits and debentures

0.9 1.5 2.7 3.2 6.1 6.9 11.4 9.8 10 20 30

1HFY2004 1HFY2005

Asset Management

Revenue Breakdown by Products

1HFY2004 vs 1HFY2005

JPY Bn

Deposit Related and Forex Fees Net Funds Transfer Revenue (1)

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Differentiation through innovation Agenda

• 1. A different kind of Japanese Bank
• 2. Institutional Banking
• 3. Consumer and Commercial Finance
• 4. Retail Banking
• 5. Conclusion

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Financial Performance

72.8 130.5 34.3 63.8 50 100 150 200

181.0 123.9 107.6 55.1 40.2 84.9 50 100 150 200

Revenue and OBP: Full Year JPY Bn Revenue and OBP: Half Year JPY Bn

Revenue Ordinary Business Profit (OBP) FY2002 FY2003 FY2004 Revenue Ordinary Business Profit (OBP) 1HFY2004 1HFY2005

Shinsei’s strong financial performance validates the Bank’s unique and innovative business model

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A New Kind of Japanese Bank We are already recognized and appreciated as an alternative to the traditional Japanese Bank

Three pillar business strategy to develop diversified and growing quality earning streams Differentiation by focusing entirely on customer needs Leader in product and channel innovation World class IT and risk management capability Commitment to transparency and corporate governance Commitment to building shareholder value

Growth through differentiation