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Rating Action:

Moody's downgrades Shinsei Bank to Baa1; on review for possible further downgrade

11 May 2010

Tokyo, May 11, 2010 -- Moody's Investors Service has today downgraded the long-term deposit and senior unsecured debt ratings of Shinsei Bank, Limited (Shinsei Bank) to Baa1 from A3, its senior subordinated debt to Baa2 from Baa1, its junior subordinated debt to Baa3 from Baa2, and its non-cumulative Tier 1 preferred securities issued by its wholly-owned subsidiaries to B1 from Ba3.

Shinsei Bank's D+ bank financial strength rating (BSFR) remains unchanged, but its baseline credit assessment (BCA) was changed to Ba1 from Baa3. At the same time, Moody's has placed all of Shinsei Bank's ratings, including its D+ BSFR, under review for further possible downgrade.

Separately, Moody's affirmed the bank's Prime-2 short-term deposit rating and said it was unaffected by the downgrades and further review for possible downgrade.

These rating actions follow yesterday's announcement that Shinsei Bank has lowered its earnings forecast for FYE 3/2010. The bank is now projecting a consolidated net loss of JPY140.1 billion, compared to an initial projection for consolidated profit of JPY10 billion.

The loss is due mainly to additional grey zone interest provisions as well as the impairment of goodwill and intangible assets relating to its consumer finance subsidiaries, including APLUS FINANCIAL Co., Ltd. and SHINKI Co., Ltd. The losses are also due to mark-downs, impairments and additional reserves made for Shinsei Bank's domestic real estate investments and non-recourse real estate portfolio. Nevertheless, despite the loss, the bank will be able to maintain its Tier 1 capital ratio of 6.35% mainly because of the reduction in risk-weighted assets occasioned by a large-scale asset re-allocation from loan assets to investment assets, mainly JGBs.

The downgrades reflect primarily three factors: 1) a greater degree of earnings volatility than Moody's had previously expected; 2) uncertainty about the bank's ability to stabilize -- possibly even generate -- reasonable profits due to the lack of a concrete business model or solid customer franchise; and 3) Moody's significant concerns about the prospects for stable earnings from the bank's consumer finance businesses in the near future.

In its review, Moody's will focus on the residual potential for further losses in the bank's consumer finance businesses, in light of the protection afforded by indemnification from General Electric Company (Aa2, Stable outlook); the adequacy of strengthened reserves against Shinsei's domestic real estate loan portfolio; the bank's ability to stabilize its earnings after the change in its asset allocation; and its capital strategy. Moody's will also assess the impact of possible change in management.

Moody's last rating action with respect to Shinsei Bank was taken on July 2, 2009, when the bank's ratings and negative outlook were affirmed.

The principal methodologies used in this rating were "Bank Financial Strength Ratings: Global Methodology" (February 2007), "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt" (November 2009), which can be found at www.moodys.com in the Research & Ratings directory, in the Rating Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies subdirectory.

Shinsei Bank, Limited, headquartered in Tokyo, had consolidated assets of JPY11.5 trillion as of December 31, 2009.

Tokyo
Maki Hanatate
VP - Senior Credit Officer
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Minoru Kubota
Managing Director
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's downgrades Shinsei Bank to Baa1; on review for possible further downgrade
No Related Data.
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