Creating a Better BankCreating a Better Bank

Shinsei Bank, Limited

Hiroo, SFCCorporate Headquarters & Main Branch, Tokyo Roppongi Hills, SFC Virtual Call Center

1

Shinsei Bank

• In 1998, LTCB failed and was nationalized

• Government tried to sell LTCB to primarily Japanese banks, but no serious Japanese bidders found

• New LTCB Partners, a fund by investors led by Ripplewood and J.C. Flowers won the bid

• The new bank started in March 2000 as Shinsei, the “newly-born” bank

2

Shinsei Bank Needed a Complete Overhaul

• Business model outdated and had a limited future

• Shinsei Bank was saddled with huge NPL problems even after the government’s bailout

• NPLs were JPY 1.9 trillion at the beginning of fiscal 2000, equal to 22% of the total loan assets

3

Returning the Bank to Health: Action Plan

• Clean-up balance sheet

• Initiate customer-centric business initiatives

• Institutional: Solution-oriented investment banking products

• Retail: New retail launch with emphasis on convenience, service and efficiency

• Leverage state-of-the-art information technology

4

Institutional Banking: Shinsei’s Approach• “Loan is one of many products”

• Customer-centric investment banking services– Securitization– Credit trading– Non-recourse lending– M&A, asset management and more

• Skilled bankers with wide knowledge and experience hired from outside

• Co-work with relationship management

5

Retail Banking: Shinsei’s Approach

• “Customer convenience and service”

• Expansion of retail channels

• Modernize image and product line-up

• Introduce “PowerFlex” accounts– Management of retail banking from single source– Broader offering of financial management products

• Introduce “PowerSmart” Housing Loans

6

IT: Shinsei’s Approach

• New CIO brought in

• IT as business process serving internal and external customers

• Time urgency and budget limit

• Heavy utilization of resources from India

• MIS implemented quickly

7

Corporate Governance: Shinsei’s Approach

• Implemented global standard governance model

• Prominent business leaders appointed as independent board members and senior advisors

• Audit Committee, Nomination and Compensation Committee established

8

Corporate Culture: Shinsei’s Approach

• Transparent management and reporting

• Accountability and speed in decisions

• Goals aligned throughout organization

• Higher motivation for success

9

Human Resources: Shinsei’s Approach

• Seniority-system ended

• Mid-career hiring

• 60% ex-LTCB employees, 30% mid-career hiring, 10% newly grads

• Culture mixed with various backgrounds

• Specialized skills and experiences emphasized

PERFORMANCE

11

Balance Sheet – Results

• Dramatic reduction of non-performing loans

Reduction of NPLs (1)

JPY Bn %

Reduction of NPLs (1)

JPY Bn %

1. Non-consolidated basis

1,865

1,2961,114

23397

20.0%

22.0%

2.8%

5.7%

19.0%

0

500

1,000

1,500

2,000

2,500

3/2000 3/2001 3/2002 3/2003 3/20040%

5%

10%

15%

20%

25%

NPL Amount NPL Ratio

1. Non-consolidated basis

12

Revenue CompositionJPY Bn %

Revenue CompositionJPY Bn %

16.031.3 41.6

66.3

85.8

88.4 66.1

57.2

54%

15%

27%39%

46%

85%

73%

61%

0

30

60

90

120

150

3/2001 3/2002 3/2003 3/20040%

20%

40%

60%

80%

100%

Net Interest Income/RevenueNon Interest Income/Revenue

Net Interest IncomeNon Interest Income

• Further progress in revenue diversification

• Non-interest income growth more than offsetting interest income decrease

Institutional Banking – Results

13

Growth in Asset Under Management (AUM) and Number of Accounts

JPY Tn Accounts (Thousands)

Growth in Asset Under Management (AUM) and Number of Accounts

JPY Tn Accounts (Thousands)

Growth in PowerSmart Housing Loans

JPY Bn Customers (Thousands)

Growth in PowerSmart Housing Loans

JPY Bn Customers (Thousands)

Retail Banking - Results

• Number of accounts reached 1,000,000 thus far

• “PowerSmart” reached JPY 140 billion in March 2004

0

20

40

60

80

100

120

140

160

3/02 9/02 3/03 9/03 3/040

1

2

3

4

5

6

7

8

Loans Outstanding Customers

0.0

0.5

1.0

1.5

2.0

2.5

3.0

6/01 9/01 3/02 9/02 3/03 9/03 3/040

200

400

600

800

1000

1200

AUM Number of accounts

14

Total Revenue and Net Income

Total RevenueJPY Bn

Total RevenueJPY Bn

120108

124

0

20

40

60

80

100

120

140

FY2001 FY2002 FY2003

Total Revenue

Net IncomeJPY Bn

Net IncomeJPY Bn

61 5366

0

20

40

60

80

100

120

140

FY2001 FY2002 FY2003

Net Income

15

ROA and ROE

ROA and Total Assets% JPY Bn

ROA and Total Assets% JPY Bn

0.7% 0.7%

1.0%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

FY2001 FY2002 FY20033,000

4,000

5,000

6,000

7,000

8,000

9,000

ROA Total Assets

ROE and Equity% JPY Bn

ROE and Equity% JPY Bn

10.1%8.1%

9.4%

0.0%

4.0%

8.0%

12.0%

16.0%

FY2001 FY2002 FY2003400

500

600

700

800

ROE Equity

(Total Assets and Equity are as at March 31 of each fiscal year)

16

Our Goals

• Bank of choice for institutional / retail customers

• Sustainable long-term growth of profitability

• Increasing shareholders’ value