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Moody’s affirms Shinsei Bank’s A3 rating with negative outlook
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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