By k on July 2, 2009

Tokyo, July 02, 2009 -- Moody's Investors Service has affirmed Shinsei
Bank, Limited (Shinsei)'s ratings, while the ratings outlook remains
negative. The ratings affected are its D+ bank financial strength rating,
Baa3 baseline credit assessment, A3/P-2 long- and short-term deposit
ratings, A3 senior unsecured debt rating, Baa1 senior and junior
subordinated debt ratings, and Baa3 preferred securities rating. 

The rating action follows the announcement on July 1, 2009 that Shinsei
and Aozora Bank, Ltd. (Aozora) had reached an agreement to merge in
October 2010.

Moody's considers that the proposed merger will not have an immediate
impact on Shinsei's credit fundamentals since the two banks will operate
independently until October 2010. If Shinsei and Aozora start to become
highly integrated, then the ratings would reflect the results of their
combined credit profiles. However, until that time, Moody's will continue
to make its assessment based on Shinsei's own credit fundamentals.

Meanwhile, Moody's understands that the proposed merger will create
Japan's sixth-largest bank, with total assets of more than JPY18
trillion. In addition, the merger should help improve the new bank's
resultant cost structure through a reduction in operating expenses as
Shinsei and Aozora integrate their headquarters and branches, and
eliminate some overlapping businesses. 

However, Moody's notes that in light of each entity's weak franchise and
management, as well as their relatively weak financial fundamentals,
there is a low probability of a prompt improvement in the merged bank's
competitive position and franchise.

In addition to the integration risks for both banks, the transaction may
pose a number of other challenges, including whether the merged bank can
restore the confidence of the market by establishing a business model
which can generate stable earnings, particularly for the businesses
funded by wholesale funds. 

The negative outlook reflects the challenges Shinsei faces in its existing
lines of business, including consumer finance as well as the prospect of
future ratings convergence with Aozora.

Moody's last rating action with respect to Shinsei was on March 10, 2009,
when the bank's rating outlook was revised to negative from stable.

The principal methodologies used in rating of Shinsei were "Bank Financial
Strength Ratings: Global Methodology" and "Incorporation of Joint-Default
Analysis into Moody's Bank Ratings: A Refined Methodology," both of
which can be found at www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory. Other methodologies
and factors that may have been considered in the process of rating these
issuers can also be found in the Credit Policy & Methodologies directory.

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