differentiation through innovation...orix ywide range of businesses but with small transaction sizes...

1

Shinsei Bank:Institutional Banking Group Evolution

Merrill Lynch Japan ConferenceSeptember 9, 2005

Differentiation Through Innovation

Thierry PortéPresident and CEO

Japan Investment Conference 2006January 20, 2006

2

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 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.

Forward Looking Statement

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Agenda

1. A different kind of Japanese Bank

2. Institutional Banking

3. Consumer and Commercial Finance

4. Retail Banking

5. Conclusion

4

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

Varie

ty o

f Pro

duct

s

Mega Banks

Hybrid

Commodity

Small Large

Regional Banks

Foreign Banks

Old LTCB

Shinsei

Old LTCB

Going Forward…

5

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

InstitutionalBanking

Consumerand

CommercialFinance

RetailBanking

Consumer and Commercial FinanceBusiness scale increase via acquisitionsImplementation of Shinsei’s expertise and know-howSynergies with Institutional / Retail Banking businesses

Institutional BankingUnique hybrid commercial and investment banking modelValue-added solutions to targeted customersIntegrated teams of product specialists and relationship managers for quick and efficient delivery

Retail BankingAttractive and innovative value propositionStrong brand developmentHighly efficient bricks and clicks distribution model

Risk Management Corporate Governance Modern IT Platform

6

Shinsei Solutions to Meet Customer Needs

InstitutionalBanking

Consumerand

CommercialFinance

RetailBanking

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, LeasingStructured 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

7

Shinsei Corporate Governance

Highly transparent management and strong monitoring functionAdoption 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 directorsEffective 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 TalentsShinsei 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 locationpossible

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 DiversificationBroaden the Shinsei franchise

Generate opportunistic P&LII. Capital Deployment

Deploy a disciplined amount of Risk Capital, and diversify earnings stream

Monetize Country Risk capacity (unused resource)

III. Ongoing DevelopmentMaintain a continuing “window” on financial technology.

Build affiliations with “like-minded” institutions, for synergy, including for Japan opportunities.

Rationale

Investments

Advisory

Acquisitions

Partnerships

International OpportunitiesFilter / Trigger

Core CompetenciesJapanese Client and Market

Knowledge

Risk Assessment and Asset Valuation

Financial and Portfolio Investments

Business Transformation

Technology and Process Management

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Agenda




4. Retail Banking

5. Conclusion

12

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

Stab

le B

ase

Gro

wth

Are

as

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Key

Priority

Corporate

Account Segmentation Strategy

Custom tailored, per client perspective

Short list of core clients

Industry and needs focused organization developing the rest of the business

Principles of the New OrganizationPreviously

• No differentiation in terms of 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 LoanStable and flexible funding

Improve Balance Sheet

Expand Business Domain

Syndicated Loan

NRL AMD & Wealth Management

DerivativesREIT Finance

M&A

Securitization (CMBS/RMBS)

Credit Product Team

Structured Product Team

Oth

er P

rodu

ct U

nit

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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AffiliatedCorporations

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 2005PSF 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 NeedsNeeded to Reconstruct the aging hospital facilityNeeded to Change the equipment for new bed standard

Improving the credibility of hospital accounting

Implement of Hospital accounting standardTendency to accept anexternal auditing

Changing the banking standard of hospital valuation

From only secured by real estate to the validity of the business planning

Healthcare Market

Nursing Care Corps

No. of Firms

Healthcare corps with nursing facilities

DentalClinics

Healthcare Corporations

Clinics

Hos

pita

ls

330

160

9000

92000

63000

Total 164,490

Total (¥T) 35

Limited Competition

Aozora BankAlliance with consulting firm Mediva

Tokyo Star Bank NRL to nursing care corp.

RBSWhole Business Securitization

OrixWide range of businesses but with small transaction sizes

City/Regional BanksBank 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 operation

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, or 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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InstitutionalBankingGroup

RetailBankingGroup

WealthManagement

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 – 2004Total arrangement volume exceeded JPY 1.7 trillion(72 transactions)

New ActivitiesMarket 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 aboost

New Securitization (WBS)

Traditional Securitization

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Institutional Banking:Strong Growth with Varied Revenue Mix

Revenue Breakdown by Products1HFY2004 vs 1HFY2005 JPY Bn

49.552.6

Non-recourse loans

Forex, Derivatives, Equity related

Credit Trading

Corporate Loans*2

Principal Investment

Other Capital Markets*1

Securitization

1.3 1.43.3 3.3

3.7 4.3

8.2 8.1

7.18.6

9.2 5.9

7.4 9.4

8.911.2

0

10

20

30

40

50

60

1HFY2004 1HFY2005

Note: Management accounting basis

Non-recourse Real Estate FinanceRevenue increase of 26.1% Balance up 14.4% to JPY 851.8 billion 80 new deals closed

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

SecuritizationConcluded 10 new deals with JPY 235.6 billion total issuance

OtherForeign 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

21


Agenda




4. Retail Banking

5. Conclusion

22

ConsumerSolutions

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 RISKMARKETING 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 Growth to Come from Execution on the “Basics”

Stabilize core revenue sourcesIn-depth profitability analysisOptimize product and channel mix

ST cost basicsLT infrastructure migrationST & LT dramatic COF improvementStabilize 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 MarketsCross-Sell (credit card, personal loan, merchant introduction)IT

Consumer Auto LeaseConsumer/Commercial Vendor Programs

Property LendingJoint Market Research

Operational Synergies

SHINSEI BANKSHOWA LEASING

SHINSEI PROPERTY FINANCELIFE HOUSING LOAN

SHINKI

SHINSEI SALES FINANCETreasury / Capital MarketsCross-SellIT

Consumer Auto LeaseConsumer/Commercial Vendor Programs

Real Estate Leasing

Insurance Tie-up

Unsecured SME LendingCross-Sell / Bundled Solutions

APLUSSHINSEI SALES FINANCE

SHINKI

SHINSEI PROPERTY FINANCELIFE HOUSING LOAN

SHINSEI BANK

SHINSEI BUSINESSFINANCE

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

APLUS

Showa Leasing

Early identifiable gains from synergyTargeted work/cooperation begun

25

Consumer and Commercial Finance:Significant Growth Contributor


Contribution by Subsidiaries JPY Bn

APLUS

Showa Leasing

Other subsidiaries

3.3 5.0

12.1

40.4

0

10

20

30

40

50

60

0.3 1.76.7

19.2

1H FY2004 1H FY2005Revenue OBPRevenue OBP


Highlights during 1HY2005

APLUS and Showa Leasing acquisitions have transformed CCF composition

APLUSAPLUS 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 LeasingShowa 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

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

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Agenda




4. Retail Banking

5. Conclusion

27

“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

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

Ogaki Kyoritsu Bank6th

eBank5th

Japan Net Bank4th

Citibank3rd

Johnan Shinkin Bank2nd

1st

2004

Bank of TokyoMitsubishi6th

eBank5th

Japan Net Bank4th

Ogaki Kyoritsu Bank3rd

Sony Bank2nd

1st

2005

Nihon Keizai Shimbun Aug. 24, 2005Nihon 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

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

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

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

WAKUWAKUExhilarating at every contact

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Launching "Color your life"

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Brand Awareness 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

0

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

BankSpotFinancial

Center

PlatinumCenter

Empowering the customer – they choose the channel

Transaction

Consultation

Revenue per transactionCost per transaction

For Shinsei – reach and efficiency

39

Customer Acquisition

65% of our customers open accounts through remote channels

0

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

40

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

41

“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 revenuegrowth 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 yearNet fund transfer revenue increased 13.1% due to continued growth in retail deposits and better spreads on USD balancesLoan 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 billionOver 247,000 new retail customer accounts were acquired during the first half of the year, 65% through remote channelsRetail accounts exceeded 1.5 million

Net Funds Transfer Revenue (1)

Deposit Related and Forex Fees


Loans

21.521.2

(1) Related to customer deposits and debentures

0.9 1.52.7 3.2

6.16.9

11.49.8

0

10

20

30

1HFY2004 1HFY2005

Asset Management

Revenue Breakdown by Products1HFY2004 vs 1HFY2005 JPY Bn

Deposit Related and Forex Fees

Net Funds Transfer Revenue (1)

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Differentiation through innovation

Agenda




4. Retail Banking

5. Conclusion

44

Financial Performance

72.8

130.5

34.3

63.8

0

50

100

150

200181.0

123.9

107.6

55.140.2

84.9

0

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 appreciatedas 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

differentiation through innovation...orix ywide range of businesses but with small transaction sizes...

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