Tokyo-based Shinsei Bank emerged from the remains of Japan’s Long Term Credit Bank in 2000, and divides its business into institutional banking, retail banking and consumer finance. The first of these units has been extremely profitable but an April credit note from Fitch Ratings says that "retail banking is just breaking even and [Shinsei’s] consumer lending businesses are suffering from the turmoil in that industry in the wake of legal changes that are enforcing radical industry restructuring."
Shinsei hopes to make a success of the deal by combining the retail and consumer finance businesses under one management structure. The bank says that it has mitigated the risks posed by potential losses arising from consumers seeking to reclaim excess interest payments, after Japanese authorities cut the maximum rate that such businesses were allowed charge by nine percentage points to 20%. Under an agreement with GE, Shinsei will be liable for the first ¥203 billion of potential losses arising from this "grey zone indemnity", with the two firms sharing losses above that up to ¥260 billion and GE taking sole responsibility for any further downside.
Full spectrum
"It’s always struck me that there’s a potential gap in the market in Japan," says David Marshall, head of financial institutions, Asia, at Fitch Ratings, "whereby the Japanese banks focus on very high end consumer lending and the consumer finance companies have catered to low-end customers and charged them rates of up to 30%.