“Explain the role of Shinsei bank in the financial system. Access its exposures and performance during the financial crisis of 2007-2011. Did it do well or badly?”
Shinsei bank has had a chequered history as its predecessor was called Long Term Credit Bank of Japan (LTCB), which declared bankruptcy during the financial crisis in Asia in 1998. Until 2000, New York-based Ripplewood’ Holdings made an acquisition, took over the bank and renamed it to ‘Shinsei’ which represented ‘renaissance’ .
Shinsei now is a leading commercial bank providing a large range of financial products and services to both institutional and individual customers. The bank is aimed to become the best ‘retail bank’ in Japan, thus it has divided its business into three components: retail banking (core competence), institutional banking and commercial finance (mainly through its subsidiaries) . It is noteworthy that the Japanese government as the second-largest shareholder has held a 23.9% stake in Shinsei bank.
Assets and funding
Shinsei bank’s total assets was $115bn in end-2007, and a large proportion, about 48.78%, was used for loans to customers because of retail banking, further 17.2% was attributed to securities purchasing and investment, and borrowing from other bank only accounted for 9.5%. After stripping a total $9.65bn equity, the total liabilities was $105.6bn. The largest proportion, about 55% was come from retail banking, the deposits and negotiable certificates of deposits; besides, further 6.27% was attributed to debentures after consolidated.
The retail bank, as the core business of the Shinsei bank Group, has developed a stable, liquid and low-cost funding base. In its non-core business, although there was a slower growth in the Japanese real estate market, the housing loan balance has still raised over $8bn, additionally, overseas investment and securitizes products purchased together was over $5bn in 2007. The bank also joint global financial groups and subsidized its subsidiary company to expand its scope of business.
In 2007, Shinsei bank showed a strong earning power, as its ‘interest income’ as core competence from retail banking was approximately $1377mn, accounted for 52.40% of its total revenue; followed by ‘other business income’, which the main business is on the area of healthcare finance, overseas investment, customer financial assistance, contributed $749mn, accounting for another 28.50% of total earnings; ‘fees and commissions’ and ‘trading income’ together occupied the rest 19.10%.
Its profitability can be further represented via several ratios. After subtracting administration expenses and credit costs, the ‘net income’ was $601mn in 2007, return of equity was therefore 8.80% and return on assets was 0.50%. The organizations classified as capitalized would have to have a 6% or greater Tier 1 capital ratio, that Shinsei bank was merely 7.37% and total capital adequacy ratio was 11.74%, which might cause...