Shinsei Bank - History

History

Shinsei Bank is the successor of a trust bank, the Long-Term Credit Bank of Japan, which had a government monopoly on the issuance of many long-term debt securities. Following the collapse of the Japanese asset price bubble in 1989, the bank was riddled with bad debts: the government nationalized it in 1998, and it was delisted from the Tokyo Stock Exchange. After several proposed mergers with domestic banks, LTCB was sold to an international group led by US-based Ripplewood Holdings in March 2000 for ¥121 billion, the first time in history that a Japanese bank came under foreign control. Investor Christopher Flowers also played a major role in the buyout syndicate and remains a key shareholder of the company today.

As part of the purchase and sale agreement, the government included a "defect warranty provision" (瑕疵担保条項, kashi tanpo jōkō?) to the effect that Shinsei could demand within the next three years that the government purchase any claims which had fallen by twenty percent or more from book value. A similar provision was afforded Aozora Bank, the successor of LTCB's similarly beleaguered sister company Nippon Credit Bank.

LTCB was relaunched as "Shinsei Bank" (literally "Newborn" or "New Life" Bank) in June 2000, with new management and services. Many of Shinsei's managers have previous experience working for foreign financial institutions in Japan, such as CEO Thierry Porte (formerly of Morgan Stanley) and CIO Jay Dvivedi (formerly of Citibank). Shinsei continued to use the Long-Term Credit Bank SWIFT code (LTCBJPJT).

Shinsei used the defect warranty provision to dispose of all the worst debts owed to the bank. Several companies which had used LTCB as their primary bank went bankrupt as a result, including Sogo (July, 2000) and the Dai-Ichi Hotel. This created a furor in Japan: politicians especially criticized Goldman Sachs, which advised on the sale of LTCB, for not warning the government of the risks inherent in the defect security provision.

Shinsei then raised ¥230 billion in an IPO on February 20, 2004. The purchase of Shinsei thus turned a profit of over ¥100 billion within four years. The success of the IPO intensified criticism of Shinsei, however: the government was estimated to have lost ¥4-5 trillion on the deal between lost investments and forced purchases of bad debt, and the profits from the deal even escaped Japanese taxation through the use of a foreign investment partnership. In April 2004, the bank exchanged its long-term credit banking license for a standard commercial banking license.

The Financial Services Agency issued an improvement order to Shinsei on June 29, 2007 after the revenues of the company fell dramatically below targets.

On April 25, 2009, it was announced that Shinsei Bank and Aozora Bank have entered into negotiations to integrate their operations in the summer of 2010, with an eye toward a eventual merger, however the talks collapsed in May 2010 amid disputes over capitalization and business strategy, as well as the abatement of the 2008 financial crisis.

In 2008, the bank sold its headquarters building near Hibiya Park and its operations center in Meguro in order to avoid falling below targets again due to investment writedowns during the subprime crisis in the United States. Shinsei moved its headquarters to the Nihombashi area of Chuo City in January 2011.