Shinsei Bank: Institutional Banking Group Evolution

Transcription

1 Shinsei Bank: Institutional Banking Group Evolution Merrill Lynch Japan Conference Business and Financial Overview September 9, Merrill Lynch Japan Conference September 7, Thierry Porté President and Chief Executive Officer

2 Forward Looking Statement 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 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

3 Agenda Section 1: A Different Kind of Japanese Bank Section 2: Financial Highlights Section 3: The Three Strategic Business Pillars» Institutional Banking» Consumer and Commercial Finance» Retail Banking Section 4: Key Corporate Imperatives Section 5: Conclusion 2

4 A Different Kind of Japanese Bank Strategic Transformation to a Leading Japanese Financial Services Company One of the Most Impressive Turnaround Stories in Japan Birth of Shinsei Building the Platform Balance sheet clean-up Diversification of funding sources State-of-the-art and cost-efficient technology Attracting and retaining talent Creation of strategic business model IPO Revenue Generation Revenue quality and diversification Solutions to meet customer needs Cross-selling initiatives Business intelligence March 2000 February 2004 Now and Future Sustainable Growth Enhancing profitability and diversification Expanding the franchise Product penetration Customer segmentation Strengthening the three strategic business pillars Current Net Income 1,2 JPY Billion Shareholders Equity JPY Billion Return on Equity 1,2 % Return on Assets 1,2 % FY FY2005 1, /2001 3/ % 10.0% 5.0% 0.0% 6.6% FY % FY % 1.2% 0.8% 0.4% 0.0% 0.3% FY % FY Cash basis excluding amortization of total intangibles 2 Excludes one-time gain from DIC equity portfolio (JPY 55Billion) in FY2000 3

5 A Different Kind of Japanese Bank Setting Shinsei Bank Apart Customer Focused More Global Than Local Competition More Local Than Global Competition Responsible to Shareholders and Society Empowered Innovative Products Proud Heritage Transparency Value-Focused Better Service Long-Term Approach High Standards Flexible Open Thinking Decisions Made in Japan Ethics and Integrity Open-Minded Useful Network Japan First and Last Measures and Rewards Long Term Profitable Growth Established Three Pillar Strategic Business Model Recognized and Appreciated Banking Approach Strong Results Diversified Income Growing Profitable Customer Base 4

6 A Different Kind of Japanese Bank A Business Model Organized Around The Customer Revenue Unique hybrid banking model Value-added solutions Integrated product specialists and relationship manager teams providing innovative solutions Institutional Banking 41% 1, 2 Retail Banking 15% 1 Customers Attractive and innovative value proposition Strong brand recognition Highly efficient and effective bricks and clicks distribution model Implementation of Shinsei s expertise Synergies with Institutional / Retail Banking businesses Organic growth and opportunistic strategic acquisitions Consumer and Commercial Finance 44% 1 Risk Management Corporate Governance Technology Platform 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 5

7 A Different Kind of Japanese Bank Board Board of of Directors Directors World-class Corporate Governance and Management Executive Directors Thierry Porté President, CEO, Shinsei Bank, Limited Non-executive International Directors Junji Sugiyama Chairman, Shinsei Bank, Limited Non-executive Domestic Directors Michael J. Boskin Emilio Botín Professor, Stanford University Chairman, Grupo Santander Shigeru Kani Former Director, Administration Department, The Bank of Japan Professor, Yokohama College of Commerce Timothy C. Collins CEO, Ripplewood Holdings, LLC J. Christopher Flowers Chairman, J.C. Flowers & Co., LLC Minoru Makihara Yasuharu Nagashima Senior Corporate Advisor, Mitsubishi Corporation Lawyer Fred H. Langhammer Chairman, Global Affairs, The Estée Lauder Companies, Inc. Nobuaki Ogawa Lawyer Lucio A. Noto Former Vice Chairman, Exxon Mobil Corporation Hiroyuki Takahashi Former Director, Japan Corporate Auditors Association John S. Wadsworth, Jr. Advisory Director, Morgan Stanley Teruaki Yamamoto President, APLUS Co., Ltd. Senior Senior Advisors 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 6

8 Shinsei Shinsei Bank Bank Recognition Recognition A Different Kind of Japanese Bank Growing Recognition and Credibility Best Bank in Japan 2004 and 2006 (Euromoney) #1 Financial Institution in Corporate Governance 2005 ranked by The Japan Corporate Governance Research Institute Inc. IPO of the Year 2004 (Thomson DealWatch) Bank of the Year for Japan 2003 (The Banker) Best Local Bank Japan 2002 (FinanceAsia) Retail Retail Banking Banking Recognition Recognition #1 in Customer Satisfaction Ranking 2004, 2005 and 2006 (Nihon Keizai Shimbun) Best Retail Bank, Japan, 2004, 2005 and Excellence in Internet Banking Awards 2005 (The Asian Banker) Good Design Award 2005 for 32 Color Cash Cards Institutional Institutional Banking Banking Recognition Recognition Securitization Deal of the Year, Japan, 2003, 2004 (Asiamoney) Japanese Securitization of the Year 2004 (IFR) Deal of the Year, Japan, 2004 (ISR) Most Innovative Deal, 2004 (FinanceAsia) Deal of the Year, Japan, 2003 (Thomson DealWatch) 7

9 Financial Highlights Strong FY2005 Results Validate our Business Model FY 2005 Highlights (All figures compared to FY2004) Total revenue increased by 54% Cash basis net income increased by 36% Total Revenue 1 JPY Billion Net Income (Reported and Cash Basis 2 ) JPY Billion FY2004 FY FY2004 FY2005 Ordinary business profit increased by 68% Earning assets increased by 27% Ordinary Business Profit 1 JPY Billion Earning Assets JPY Billion ,315 6, FY2004 FY2005 FY2004 FY Management accounting basis 2 Cash basis excludes amortization of total intangibles 8

10 Financial Highlights Diversified Revenue Streams Net Interest Income and Non-NII Revenue Composition Net Interest Income and Non-NII Revenue Composition FY2004 vs. FY2005 JPY Bn FY2004 vs. FY2005 JPY Bn % of Non Interest income to total revenue Net Interest Income Non-Interest Income % FY Excludes revenue (losses) of ALM/Corporate/Other 69.9% 32.1 FY2005 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 9 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

11 Financial Highlights Effective Cost Management Expense Composition Expense Composition FY2004 vs. FY2005 FY2004 vs. FY2005 JPY Bn JPY Bn Expense to revenue ratio 54.0% 49.7% IB CCF Retail Total expenses increased by: Inclusion of Showa Leasing and APLUS Expenses by business line 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 FY Excludes expenses of ALM/Corporate/Other FY

12 Financial Highlights Low-cost and Stable Funding from Growing Retail Customer Base Customer Customer Funding Funding Composition Composition and and Average Average Cost Cost of of Interest Interest Bearing Bearing Liabilities Liabilities 100% 80% 60% 40% 20% 0% 1.5% 1.2% 0.9% 0.6% 0.67% 0.3% 1.20% 30% 51% 45% 39% 63% 73% 0.88% 9% 12% 16% 0.69% 16% 0.64% 0.66% 20% 61% 49% 19% 33% 39% 8% 18% 0.0% FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 Retail Deposits Retail Debentures Institutional Deposits/Debentures Average Cost of Interest Bearing Liabilities 11

13 Financial Highlights Increasing Levels of Profitability and Returns ROE ROE (diluted) (diluted) 1 1 and and Equity Equity JPY Bn % JPY Bn % ROA ROA 2 2 and and Total Total Assets Assets JPY Bn % JPY Bn % 1,000 15% 15, % % % % % % 9% 6% 13,000 11,000 9,000 7, % 6, % 6, % 8, % 9, % 0.9% 0.6% 600 3% 5, % 500 FY2002 FY2003 FY2004 FY2005 0% 3,000 FY2002 FY2003 FY2004 FY % Equity ROE (diluted) Total Assets ROA 1 Equity includes preferred shares. Cash basis ROE (diluted) for FY2004 and FY Cash basis ROA for FY2004 and FY

14 Financial Highlights Healthy Balance Sheet Reduction Reduction of of NPLs NPLs 1 1 JPY Bn % JPY Bn % 2,500 2,000 1,500 1, % 1, % 19.0% 1,296 1, % 2.8% % 1.0% % 20% 15% 10% 0% 3/2000 3/2001 3/2002 3/2003 3/2004 3/2005 3/2006 5% NPL NPL Coverage Coverage Ratio Ratio / / NPL NPL Ratio Ratio As of March 2006 % As of March 2006 % 100% 80% 60% 40% 20% 0% 91% 77% 71% 73% 2.1% 1.7% 1.4% 1.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Shinsei MUFG2 3 Mizuho SMFG4 NPL Amount NPL Ratio NPL Coverage Ratio NPL Ratio 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) 13

15 Financial Highlights Capital Ratios and Quality of Capital Ahead of Top Peers Regulatory Regulatory Capital Capital Ratio Ratio As of March 2006 % As of March 2006 % Net Net DTAs DTAs 1 1 / / Tier Tier 1 1 Capital Capital As of March 2006 % As of March 2006 % 20.0% 40% 16.0% 12.0% 8.0% 15.5% 12.2% 11.6% 12.4% 30% 20% 21.6% 4.0% 0.0% 10.3% 6.8% 5.9% 7.1% Shinsei MUFG Mizuho SMFG 10% 0% 2.2% 8.3% 6.4% Shinsei MUFG Mizuho SMFG Tier I Ratio Total Capital Ratio 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) 14

16 Financial Highlights 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) Moody s Moody s Rating Rating History History Long-term Long-term Senior Senior Debt Debt BFSR BFSR 1 1 (February 3, 2006) Baa1 Shinsei s Credit Ratings have been Improving.. A3 D+ (December 12, 2003) (February 3, 2006) D (December 12, 2003) S&P S&P Rating Rating History History Long-term Long-term Senior Senior Debt Debt BFSR BFSR 2 2 Outlook Positive (January 24, 2006) BBB+ (December 17, 2004) C+ (July 11, 2005) Baa2 (January 12, 1999) D- (July 10, 2001) BBB (June 9, 2003) Baa3 (August 12, 1998) E+ (March 10, 2000) BBB- (March 2, 2000) 1 Bank Financial Strength Rating 2 Bank Fundamental Strength Rating 15

17 Public Funds Commencement of Resolution of Public Funds 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 Class A Class B Common 1,358 1,558 1,558 1,558 of Which, Treasury Total on Fully-diluted Basis (net of Treasury) Government Ownership on Fully-diluted Basis (%) 2,027 2,027 1,990 1, % 33.0% 31.8% 23.8% Description Government converted half of Class B at JPY conversion price Conversion price for Class B was reset to JPY 735 Shinsei repurchased 175 million shares from government Target Tier 1 Capital Ratio: 7% - 8% Target Share Count Reduction: 5% - 6% 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. 16

18 The Three Business Pillars Strong Ordinary Business Profit Growth in all Business Lines FY FY % 2, 3 Institutional Banking 41% 1, 3 Retail Banking 15% 1 Customers 6% Revenue OBP Revenue (JPY Bn) Ordinary business profit (JPY Bn) FY FY2005 Consumer and Commercial Finance 44% 1 43% FY FY 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 17

19 Institutional Banking Success Driven by Hybrid Innovative Solutions to Meet Customer Needs Shinsei Shinsei continues continues to to evolve evolve to to a a Hybrid Hybrid Bank Bank Profit Profit Trend Trend 1 1 JPY Billion JPY Billion Variety of Products Hybrid Small Foreign Investment Banks Shinsei Regional Banks Japanese Mega Banks Large Number of Customers Commodity 0 FY2003 FY2004 FY2005 Total Revenue Ordinary Business Profit 1 Management accounting basis 18

20 Institutional Banking Targeted Product Penetration Through Cross-sell Using Business Intelligence Revenue Revenue Composition Composition by by Products Products 1 1 FY2005 FY2005 Other Capital Markets 6% Principal Investment 5% Securitization 13% Credit Trading 13% Others 3% Corporate Loans 15% Forex, Derivatives, Equityrelated 27% Non-recourse Lending 17% Effective Effective Cross-selling Cross-selling of of Products Products Stable Base Growth Areas Corporates Universe of Relationships Financial Institutions Loan Syndication Wealth Management Securitization Credit Trading Real Estate, Hotel, Construction New Securitization Asset Classes Capital Markets Distribution Asset Management Non-recourse Loans Public Sector 1 Management accounting basis 19

21 Institutional Banking Focusing on Growth Businesses and Customer Relationships Key Revenue Drivers Key Cost Drivers Challenges Build Product Offering in Capital Markets and Securities Firms Use of Technology to Enhance Operational Efficiency Lack of Market Pricing Discipline for Corporate Loans Increase Products per Corporate Customer Relationship Maintain Expense Ratio at Low Levels Evolve Business Model as Core Product Growth Decelerates Expand Product Offering To Public Sector Leverage Financial Ties for Third Party Distribution of Shinsei Products and Capabilities Timely Execution of Future Key Business Franchises (M&A, Asset/Wealth Management) Hire and Retain Quality Staff Extend Core Competencies Overseas 20

22 Consumer and Commercial Finance Leveraging Shinsei Expertise to Build an Effective Consumer and Commercial Finance Business Pillar Overview Overview Profit Profit Trend Trend 4 4 JPY Billion JPY Billion FINANCE Funding Expertise Expense Control MARKETING RISK IT/OPS HR M&A 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 Consumer Solutions Small & Medium Business Solutions Specialty Property Solutions (APLUS 1 ) (SHINKI 2 ) (SHOWA LEASING) (Shinsei Business Finance) Total Assets 3 (Shinsei Property Finance) (Life Housing Loan) JPY1,822Billion JPY574Billion JPY126Billion FY2003 FY2004 FY2005 Total Revenue Ordinary Business Profit 1 Shinsei Sales Finance was assigned from Shinsei Bank to APLUS in the 1 st Quarter of FY 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, Management accounting basis 21

23 Consumer and Commercial Finance Successful Integration of Recent Acquisitions Greatly Expand Consumer and Commercial Finance Opportunities APLUS: APLUS: Strong Strong Customer Customer Base Base SHOWA SHOWA LEASING: LEASING: Attractive Attractive Platform Platform JPY JPY 2 trillion trillion transaction transaction volume volume JPY JPY billion billion leasing leasing and and rental rental 5 million million card card holders holders assets assets co-branded co-branded cards cards in in Continuous Continuous relationship relationship with with conjunction conjunction with with high-profile high-profile Resona Resona while while adding adding Shinsei Shinsei partners partners network network to to diversify diversify customer customer base base Cross-selling to customers/partners Continuously improving risk management 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,

24 Consumer and Commercial Finance APLUS & SHOWA LEASING - Significant Contribution to Shinsei Group APLUS Key Disclosed Financials after Shinsei s Acquisition JPY Bn Income before income tax months ended Mar Shareholders' Equity months ended Sep months ended Mar Note: All figures presented above are APLUS disclosed financials (consolidated basis) and are before consolidation to Shinsei s financials 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 SHOWA LEASING Key Financials after Shinsei s Acquisition JPY Bn 8.0 Income before income tax Shareholders' Equity 60.0 SHOWA LEASING Updates: Mid-sized leasing company providing leasing, installment finance and rental months ended Sep months ended Mar In FY2005, annual lease origination amount (kenshu-daka) increased approximately 12% compared to FY2004 (non-consolidated basis) Note: All figures presented above are SHOWA LEASING s non-consolidated financials and are before consolidation to Shinsei s financials. 23

25 Consumer and Commercial Finance Transforming Mature Platforms for Sustainable Growth Key Revenue Drivers Key Cost Drivers Challenges 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 Effective ALM Management to Minimize Interest Rate Exposure Development of More Productive Risk Models Standardization, Simplification and Long-term Automation of Operations Full Entry of Mega-banks into Consumer and Commercial Finance Markets Scale Grey Zone Issues Product Scope 24

26 Retail Banking Increased Diversification of Revenue Sources FY2005 Highlights Revenue Revenue Breakdown Breakdown by by Products Products FY2004 vs. FY2005 FY2004 vs. FY2005 JPY Bn JPY Bn Revenue Drivers Double digit year-on-year growth in all sectors backed by Strong deposit growth of 33.2% to over JPY 3.0 trillion Asset management products (Mutual funds and Variable annuities) Housing loan balance grew 57.1% to JPY billion Expense to revenue ratio 82.0% in FY2005 from 84.3% in FY FY2004 FY Related to both customer deposits and debentures Note: Management accounting basis Deposit Related Non-Interest Income up 11.1% Deposit and Debentures Net Interest Income up 33.2% 1 Asset Management up 22.6% Loans up 63.5% 25

27 Retail Banking High Level of Brand Recognition and Outstanding Customer Satisfaction Brand Brand Awareness Awareness % % 100 Customer Customer Satisfaction Satisfaction Ranking Ranking % % st 1 st 1 st Bank of Tokyo- Mitsubishi UFJ 1 N/A N/A 11 th Citibank 3 rd 13 th 13 th 0 Shinsei Bank Bank of Tokyo- Mitsubishi Nov-01 Citibank Jun-05 Sony Bank Sumitomo Mitsui Banking Corporation 16 th 16 th 21 st Mizuho Bank 28 th 25 th 28 th Source: Asatsu-DK Survey Source: Nihon Keizai Shimbun October 5, 2004, August 24, 2005 and August 24, Bank of Tokyo-Mitsubishi and UFJ Bank merged in January Bank of Tokyo-Mitsubishi ranked 10 th in 2004 and 6 th in UFJ Bank ranked 34 th in 2004 and 20 th in

28 Retail Banking Focus on Enhancing Customer Base Profitability Key Revenue Drivers Key Cost Drivers Challenges 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 Innovative Product Development Supported by Advanced Business Intelligence 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 Physical Presence Competitor Activity Resource Constraints 27

29 First Quarter FY2006 Financial Highlights On Track to Meet FY2006 Financial Targets First Quarter FY2006 (All figures compared to the first quarter of FY2005) 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% 28

30 Key Corporate Imperatives Pursuing Long-Term Sustainable Growth Total Capital Ratio of 12% Revenues to grow faster than Expenses Achieve ROE of 14% on cash basis The Five Key Corporate Imperatives FY Expense / Revenue Ratio < 50% Increase ROA to 1.5% on cash basis 29

31 Conclusion A Different Kind of Japanese Bank 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 Financial Position and Performance on Track 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 Clear financial objectives for long-term profitable growth 30

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