Shinsei Bank: Institutional Banking Group Evolution Merrill Lynch - - PowerPoint PPT Presentation
Shinsei Bank: Institutional Banking Group Evolution Merrill Lynch Japan Conference Business and Financial Overview September 9, 2005 2006 Merrill Lynch Japan Conference September 7, 2006 Thierry Port President and Chief Executive
Merrill Lynch Japan Conference September 9, 2005 “Business and Financial Overview”
2006 Merrill Lynch Japan Conference September 7, 2006
Thierry Porté
President and Chief Executive Officer
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The following materials 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
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.
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3
technology
model
Building the Platform March 2000 February 2004 Current
Revenue Generation
diversification
business pillars
N
a n d F u t u r e Sustainable Growth
0.3% 1.2% 0.0% 0.4% 0.8% 1.2% 1.6% FY2000 FY2005 35 101 20 40 60 80 100 120 FY2000 FY2005 582 855 200 400 600 800 1,000 3/2001 3/2006 6.6% 12.4% 0.0% 5.0% 10.0% 15.0% FY2000 FY2005
I P O B i r t h
S h i n s e i
Return on Assets1,2
%
Net Income1,2
JPY Billion
Shareholders’ Equity
JPY Billion
Return on Equity1,2
%
1 Cash basis excluding amortization of total intangibles 2 Excludes one-time gain from DIC equity portfolio (JPY 55Billion) in FY2000
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More Global Than More Global Than Local Competition Local Competition
Innovative Products Better Service Open Thinking Useful Network
Responsible to Responsible to Shareholders and Shareholders and Society Society Customer Customer Focused Focused More Local Than More Local Than Global Competition Global Competition
Empowered Value-Focused Flexible Open-Minded Proud Heritage Long-Term Approach Decisions Made in Japan Japan First and Last Transparency High Standards Ethics and Integrity Measures and Rewards
Recognized Recognized and Appreciated and Appreciated Banking Approach Banking Approach Strong Results Strong Results Diversified Income Diversified Income Growing Profitable Growing Profitable Customer Base Customer Base Established Established Three Pillar Three Pillar Strategic Business Model Strategic Business Model
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Implementation of Shinsei’s expertise Synergies with Institutional / Retail Banking businesses Organic growth and
acquisitions Unique hybrid banking model Value-added solutions Integrated product specialists and relationship manager teams providing innovative solutions Attractive and innovative value proposition Strong brand recognition Highly efficient and effective “bricks and clicks” distribution model
Institutional Banking
41%1, 2
Retail Banking
15%1
Consumer and Commercial Finance
44%1
Revenue
1 Percentage of total revenue contribution for the fiscal year ended March 31, 2006, management accounting basis 2 Includes revenue (losses) of ALM/Corporate/Other
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Board of Directors Board of Directors
Executive Directors
Thierry Porté President, CEO, Shinsei Bank, Limited Junji Sugiyama Chairman, Shinsei Bank, Limited
Non-executive International Directors Non-executive Domestic Directors
Michael J. Boskin Professor, Stanford University Emilio Botín Chairman, Grupo Santander Timothy C. Collins CEO, Ripplewood Holdings, LLC
Chairman, J.C. Flowers & Co., LLC Fred H. Langhammer Chairman, Global Affairs, The Estée Lauder Companies, Inc. Lucio A. Noto Former Vice Chairman, Exxon Mobil Corporation John S. Wadsworth, Jr. Advisory Director, Morgan Stanley Shigeru Kani Former Director, Administration Department, The Bank of Japan Professor, Yokohama College of Commerce Minoru Makihara Senior Corporate Advisor, Mitsubishi Corporation Yasuharu Nagashima Lawyer Nobuaki Ogawa Lawyer Hiroyuki Takahashi Former Director, Japan Corporate Auditors Association Teruaki Yamamoto President, APLUS Co., Ltd.
Senior Advisors Senior Advisors
Takashi Imai John S. Reed Paul A. Volcker Masamoto Yashiro Senior Advisor, Honorary Chairman, Nippon Steel Corporation Former Chairman, Citigroup Inc. Former Chairman, Board of Governors of the Federal Reserve System Former Chairman, CEO, Shinsei Bank, Limited
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Shinsei Bank Recognition Shinsei Bank Recognition
Research Institute Inc.
2004 (Asiamoney)
DealWatch)
Institutional Banking Recognition Institutional Banking Recognition
2005 and 2006 (Nihon Keizai Shimbun)
Excellence in Internet Banking Awards 2005 (The Asian Banker)
Cards”
Retail Banking Recognition Retail Banking Recognition
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178 273 100 200 300 FY2004 FY2005
Total Revenue 1
JPY Billion
FY 2005 Highlights
(All figures compared to FY2004)
74 67 76 101 30 60 90 120 FY2004 FY2005
Net Income (Reported
and Cash Basis 2)
JPY Billion
81 137 50 100 150 200 FY2004 FY2005
Ordinary Business Profit 1
JPY Billion 5,315 6,749 2000 4000 6000 8000 FY2004 FY2005
Earning Assets
JPY Billion
1 Management accounting basis 2 Cash basis excludes amortization of total intangibles
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Net Interest Income and Non-NII Revenue Composition
FY2004 vs. FY2005 JPY Bn
Net Interest Income and Non-NII Revenue Composition
FY2004 vs. FY2005 JPY Bn 22.2 25.5 25.9 81.7 61.7 84.4 50 100 150 200 FY2004 FY2005 15.2 16.8 17.2 38.0 35.3 32.1 50 100
62.4% 69.9%
Net Interest Income1 Non-Interest Income1 % of Non Interest income to total revenue
IB CCF Retail
Major Components of Net Interest Income: Institutional Banking (IB)
Corporate loans, Non-recourse loans
Consumer and Commercial Finance (CCF)
Credit cards, Cashing loans, Consumer finance
Retail Banking
Housing loans, Deposit products
Major Components of Non Interest Income: Institutional Banking
Capital markets activities, Non-recourse finance, Credit trading, Securitization, Principal investment, Asset management, M&A
Consumer and Commercial Finance
Installment sales credit, general and auto leasing
Retail Banking
Deposit-related non-interest income, Asset management (mutual funds and annuity products), Forex
1 Excludes revenue (losses) of ALM/Corporate/Other
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Expense Composition
FY2004 vs. FY2005 JPY Bn
Expense Composition
FY2004 vs. FY2005 JPY Bn 31.6 34.8 26.1 60.4 37.8 39.1 50 100 150 FY2004 FY2005
54.0% 49.7%
Expenses by business line1 Expense to revenue ratio
IB CCF Retail
Total expenses increased by: Inclusion of Showa Leasing and APLUS Increased customer and product support through Retail growth Expansion of Retail distribution channels Expenses to revenue ratio decreased to 49.7% by: Strong revenue growth and enhanced expense rationalization in each business line
1 Excludes expenses of ALM/Corporate/Other
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Customer Funding Composition and Average Cost of Interest Bearing Liabilities Customer Funding Composition and Average Cost of Interest Bearing Liabilities
8% 18% 33% 39% 49% 61% 19% 20% 16% 16% 12% 9% 73% 63% 51% 45% 39% 30%
0.67% 1.20% 0.88% 0.69% 0.64% 0.66%
0% 20% 40% 60% 80% 100%
FY2000 FY2001 FY2002 FY2003 FY2004 FY2005
0.0% 0.3% 0.6% 0.9% 1.2% 1.5%
Retail Deposits Retail Debentures Institutional Deposits/Debentures Average Cost of Interest Bearing Liabilities
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ROE (diluted)1 and Equity
JPY Bn %
ROE (diluted)1 and Equity
JPY Bn % ROE (diluted) Equity
ROA2 and Total Assets
JPY Bn %
ROA2 and Total Assets
JPY Bn % ROA Total Assets 855 786 730 679 9.4% 8.1% 9.8% 12.4% 500 600 700 800 900 1,000 FY2002 FY2003 FY2004 FY2005 0% 3% 6% 9% 12% 15%
6,706 8,576 9,405 6,343 1.0% 0.7% 1.0% 1.2% 3,000 5,000 7,000 9,000 11,000 13,000 15,000 FY2002 FY2003 FY2004 FY2005 0.0% 0.3% 0.6% 0.9% 1.2% 1.5%
1 Equity includes preferred shares. Cash basis ROE (diluted) for FY2004 and FY2005 2 Cash basis ROA for FY2004 and FY2005
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NPL Coverage Ratio / NPL Ratio
As of March 2006 %
NPL Coverage Ratio / NPL Ratio
As of March 2006 % 77% 71% 73% 91%
2.1% 1.7% 1.0% 1.4%
0% 20% 40% 60% 80% 100%
Shinsei MUFG Mizuho SMFG
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Reduction of NPLs1
JPY Bn %
Reduction of NPLs1
JPY Bn % 1,865 1,296 1,114 233 43 52 97 20.0% 1.0% 19.0% 5.7% 2.8% 22.0% 1.4%
500 1,000 1,500 2,000 2,500 3/2000 3/2001 3/2002 3/2003 3/2004 3/2005 3/2006 0% 5% 10% 15% 20% 25%
NPL Amount NPL Ratio NPL Coverage Ratio NPL Ratio
3 4 2
Source: Company disclosure
1 Based on Financial Revitalization Law (Non-consolidated) 2 Bank of Tokyo-Mitsubishi UFJ, Mitsubishi UFJ Trust and Banking Corporation, “MUSP”, “UFJTE” 3 Mizuho Bank, Mizuho Corporate Bank, Mizuho Trust & Banking and Revitalization subsidiaries 4 SMBC (Non-consolidated)
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Regulatory Capital Ratio
As of March 2006 %
Regulatory Capital Ratio
As of March 2006 %
15.5% 12.2% 11.6% 12.4% 10.3% 6.8% 5.9% 7.1% 0.0% 4.0% 8.0% 12.0% 16.0% 20.0%
Shinsei MUFG Mizuho SMFG Tier I Ratio Total Capital Ratio
Net DTAs1 / Tier 1 Capital
As of March 2006 %
Net DTAs1 / Tier 1 Capital
As of March 2006 %
21.6% 6.4% 8.3% 2.2%
0% 10% 20% 30% 40% Shinsei MUFG Mizuho SMFG
2 3 4 Source: Company disclosures Source: Company disclosures
1 Deferred Tax Assets 2 Mitsubishi UFJ Financial Group and UFJ Holdings Inc (consolidated basis) 3 Mizuho Bank, Mizuho Corporate Bank, Mizuho Trust & Banking and Revitalization subsidiaries (consolidated basis) 4 Sumitomo Mitsui Financial Group (consolidated basis)
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Moody’s Rating History Long-term Senior Debt BFSR1 Moody’s Rating History Long-term Senior Debt BFSR1 S&P Rating History Long-term Senior Debt BFSR2 S&P Rating History Long-term Senior Debt BFSR2
Moody’s upgraded its ratings on Long-term Senior Debt and BFSR (February 3, 2006) S&P revised the outlook on long-term debt to positive from stable (January 24, 2006)
(March 10, 2000) (August 12, 1998) (July 10, 2001) (January 12, 1999) (December 12, 2003) (February 3, 2006) (December 12, 2003)
(December 17, 2004)
(June 9, 2003)
(January 24, 2006)
(July 11, 2005)
(February 3, 2006)
1 Bank Financial Strength Rating 2 Bank Fundamental Strength Rating
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Changes in Number of Shares (on fully-diluted basis) (Million Shares)
Before July 31, 2006 Conversion on July 31, 2006 Reset on August 1, 2006 Repurchase on August 17, 2006
269 269 163
Common
1,358 1,558 1,558 1,558
175
Total on Fully-diluted Basis (net of Treasury)
2,027 2,027 1,990 1,815
Government Ownership on Fully-diluted Basis (%)
33.0% 33.0% 31.8% 23.8%
Description
Government converted half of Class B at JPY 599.9 conversion price Conversion price for Class B was reset to JPY 735 Shinsei repurchased 175 million shares from government 163 269 200 269 400
Class A1 Class B1
1 Number of shares for Class A and Class B are number of shares on fully –diluted basis (number of common shares after conversion). 2 Treasury stock arising from the share repurchase.
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OBP
97.0 116.6 59.1 77.5 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 119.7 43.2 59.3 17.1 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0
6%2 51% 2, 3
Institutional Banking
41%1, 3
Retail Banking
15%1 43%2
Consumer and Commercial Finance
44%1
Revenue 42.4 37.5 7.6 5.9
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 FY2004 FY2005 FY2004 FY2005 FY2004 FY2005
Revenue (JPY Bn) Ordinary business profit (JPY Bn)
1 Percentage of total revenue contribution for the fiscal year ended March 31, 2006, management accounting basis 2 Percentage of OBP contribution for the fiscal year ended March 31, 2006, management accounting basis 3 Includes revenue (losses) of ALM/Corporate/Other
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Profit Trend 1 JPY Billion Profit Trend 1 JPY Billion
59.1 77.5 116.6 89.1 97.0 51.4 20 40 60 80 100 120
FY2003 FY2004 FY2005
Total Revenue Ordinary Business Profit
Shinsei continues to evolve to a Hybrid Bank Shinsei continues to evolve to a Hybrid Bank
Number of Customers Variety of Products
Japanese Mega Banks
Commodity Small Large
Regional Banks Foreign Investment Banks
Hybrid
Shinsei
1 Management accounting basis
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Revenue Composition by Products 1
FY2005
Revenue Composition by Products 1
FY2005
Effective Cross-selling of Products Effective Cross-selling of Products
Corporates Financial Institutions
Real Estate, Hotel, Construction
Public Sector Universe of Relationships Credit Trading Non-recourse Loans Securitization Asset Management Wealth Management Capital Markets Distribution Loan Syndication New Securitization Asset Classes Stable Base Growth Areas
Principal Investment 5% Credit Trading 13% Forex, Derivatives, Equity- related 27% Non-recourse Lending 17% Corporate Loans 15% Securitization 13% Others 3% Other Capital Markets 6%
1 Management accounting basis
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Key Cost Key Cost Drivers Drivers
Use of Technology to Enhance Operational Efficiency Maintain Expense Ratio at Low Levels
Key Revenue Key Revenue Drivers Drivers
Build Product Offering in Capital Markets and Securities Firms Increase Products per Corporate Customer Relationship Expand Product Offering To Public Sector Leverage Financial Ties for Third Party Distribution of Shinsei Products and Capabilities
Challenges Challenges
Lack of Market Pricing Discipline for Corporate Loans Evolve Business Model as Core Product Growth Decelerates Timely Execution of Future Key Business Franchises (M&A, Asset/Wealth Management) Hire and Retain Quality Staff Extend Core Competencies Overseas
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Profit Trend 4
JPY Billion
Profit Trend 4
JPY Billion
Overview Overview
Consumer Solutions New Products Sales Force Management Brand / PR Underwriting Risk Analysis IT Migration to Flexible and Open Architecture People Development Career Mobility Platform Expansion Major Alliances Funding Expertise Expense Control
FINANCE RISK MARKETING IT/OPS HR M&A
(SHINKI 2) (APLUS1) (SHOWA LEASING) (Shinsei Business Finance) (Life Housing Loan) (Shinsei Property Finance)
JPY1,822Billion JPY574Billion JPY126Billion Total Assets 3
5.5 119.7 2.5 17.1 59.3 43.2 20 40 60 80 100 120 FY2003 FY2004 FY2005 Total Revenue Ordinary Business Profit
Small & Medium Business Solutions Specialty Property Solutions
1 Shinsei Sales Finance was assigned from Shinsei Bank to APLUS in the 1st Quarter of FY2006 2 Shinki is an equity-method affiliate 3 Total assets are the sum of companies grouped together around “Consumer”, ”Commercial” and “Specialty Property” as of March 31, 2006 4 Management accounting basis
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APLUS: Strong Customer Base APLUS: Strong Customer Base SHOWA LEASING: Attractive Platform SHOWA LEASING: Attractive Platform
– JPY 2 trillion transaction volume – 5 million card holders – 800 co-branded cards in conjunction with high-profile partners – JPY 2 trillion transaction volume – 5 million card holders – 800 co-branded cards in conjunction with high-profile partners – JPY 350 billion leasing and rental assets 1 – Continuous relationship with Resona while adding Shinsei network to diversify customer base – JPY 350 billion leasing and rental assets 1 – Continuous relationship with Resona while adding Shinsei network to diversify customer base Credit Rating (R&I) Credit Rating (JCR) BBB+ / —
(December 2004)
A- / a-1
(December 2005)
— / NJ
(January 2005)
A- / J-1
(March 2005)
1 As of March 31, 2006
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4.6 6.8 6.1 64.7 73.4 76.8
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
6 months ended
6 months ended
6 months ended
0.0 20.0 40.0 60.0 80.0 100.0 Income before income tax Shareholders' Equity
APLUS Key Disclosed Financials after Shinsei’s Acquisition JPY Bn
APLUS’ Updates: Japan’s #5 Shinpan in terms of pre-tax earnings, #9 consumer finance company by outstanding assets of JPY 1.6 trillion Credit card growth continues since acquisition, up approx. 20% to over 5 million Acquisition of Zen-Nichi Shinpan (March 2006) as the first major acquisition with APLUS platform
Note: All figures presented above are APLUS’ disclosed financials (consolidated basis) and are before consolidation to Shinsei’s financials.
3.2 2.8 29.7 33.8
0.0 2.0 4.0 6.0 8.0
6 months ended
6 months ended
0.0 20.0 40.0 60.0 Income before income tax Shareholders' Equity
Note: All figures presented above are SHOWA LEASING’s non-consolidated financials and are before consolidation to Shinsei’s financials.
SHOWA LEASING Key Financials after Shinsei’s Acquisition JPY Bn
SHOWA LEASING Updates: Mid-sized leasing company providing leasing, installment finance and rental In FY2005, annual lease origination amount (kenshu-daka) increased approximately 12% compared to FY2004 (non-consolidated basis)
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Key Cost Key Cost Drivers Drivers
Effective ALM Management to Minimize Interest Rate Exposure Development of More Productive Risk Models Standardization, Simplification and Long-term Automation
Key Revenue Key Revenue Drivers Drivers
Expand Value Delivered to Clients through APLUS and SHOWA Increase Cross-selling & Product Collaboration between Shinsei and CCF companies and within Target Markets Improve Effectiveness of Core Sales Force Extend Business Platforms through New Product Development, M&A, Joint Ventures and Alliances
Challenges Challenges
Full Entry of Mega-banks into Consumer and Commercial Finance Markets Scale Grey Zone Issues Product Scope
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Revenue Breakdown by Products
FY2004 vs. FY2005
JPY Bn
Revenue Breakdown by Products
FY2004 vs. FY2005
JPY Bn
Note: Management accounting basis
Deposit and Debentures Net Interest Income up 33.2%1 Loans up 63.5% Deposit Related Non-Interest Income up 11.1%
37.5
1 Related to both customer deposits and debentures
1.9 3.2 6.0 7.4 12.9 13.3 16.5 18.3 10 20 30 40 50
FY2004 FY2005
Asset Management up 22.6%
FY2005 Highlights
Double digit year-on-year growth in all sectors backed by
to over JPY 3.0 trillion
(Mutual funds and Variable annuities)
57.1% to JPY 454.5 billion
82.0% in FY2005 from 84.3% in FY2004
42.4
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Brand Awareness
%
Brand Awareness
%
Customer Satisfaction Ranking
%
Customer Satisfaction Ranking
%
2004 2005 2006
Bank of Tokyo- Mitsubishi UFJ
1
N/A N/A 11th 3rd 16th 28th
Citibank 13th 13th Sumitomo Mitsui Banking Corporation 16th 21st Mizuho Bank 25th 28th
20 40 60 80 100 Shinsei Bank Bank of Tokyo- Mitsubishi Citibank Sony Bank
Nov-01 Jun-05 Source: Nihon Keizai Shimbun October 5, 2004, August 24, 2005 and August 24, 2006
1 Bank of Tokyo-Mitsubishi and UFJ Bank merged in January 2006
Source: Asatsu-DK Survey
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Key Cost Drivers Key Cost Drivers
Delivery Effectiveness Emphasizing Synergy between Physical and Remote Channels Targeted Direct Marketing Effort Using Analytic Tools Internet as a Low Cost Revenue Generator Lower Expense Ratio
Key Revenue Key Revenue Drivers Drivers
Resource and Capacity Leverage Customer Acquisition via Active Branding Increased Number of Cross Sell Products Aligned to Customer Needs Increased Number of Profitable Customers Driven by Segmentation Model
Challenges Challenges
Physical Presence Resource Constraints Competitor Activity Innovative Product Development Supported by Advanced Business Intelligence
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Total revenue grew 5.6% to JPY 68.1 billion Ordinary Business Profit after net credit costs increased 8.6% to JPY 27.0 billion Net Income increased 10.2% to JPY 19.2 billion Cash basis Net Income increased 4.9% to JPY 24.5 billion ROA of 0.8% (Cash basis ROA of 1.1%) ROE (diluted) of 9.0% (Cash basis ROE (diluted) of 11.6%) Expense to revenue ratio of 54.8%
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Increase ROA to 1.5% on cash basis Total Capital Ratio of 12% Revenues to grow faster than Expenses Achieve ROE of 14% on cash basis Expense / Revenue Ratio < 50%
The Five Key Corporate Imperatives FY2006-2008
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– The three pillar business strategy to pursue sustainable and diversified growth – State-of-the-art cost-efficient infrastructure – Advanced risk management capability – World-class corporate governance and control – Attractive fundamentals – Diversified and growing revenue – Disciplined cost management – Improving profitability and returns – High quality assets and balance sheet – Stable capital base and capital quality – Enhanced funding mix – Secure operating cash flow
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