Shinsei Bank: Institutional Banking Group Evolution Differentiation Through Merrill Lynch Japan Conference Innovation September 9, 2005 Thierry Porté President and CEO Japan Investment Conference 2006 January 20, 2006 1 Forward Looking Statement 9The following materials may contain statements that constitute forward-looking statements, plans for the future, management targets, etc. relating to the Company and its subsidiaries. These forward-looking statements are based on current assumptions of future events and trends, which may be incorrect. Actual results may differ materially from those in the statements as a result of various factors. 9Unless otherwise noted, the financial data contained in these materials are presented under Japanese GAAP. The Company disclaims any obligation to update or to announce any revision to forward-looking statements to reflect future events or developments. Unless otherwise specified, all the financials are shown on a consolidated basis. 9Information concerning financial institutions other than the Company and its subsidiaries are based on publicly available information. 9These materials do not constitute an invitation or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever. 2 Differentiation Through Innovation Agenda 1. A different kind of Japanese Bank 2. Institutional Banking 3. Consumer and Commercial Finance 4. Retail Banking 5. Conclusion 3 More Global than the Local Banks More Local than the Global Banks Shinsei is now uniquely positioned in Japan as a hybrid commercial and investment bank. We have the relationships and lending capabilities of traditional Japanese banks AND a line of products on par with those of global banks in Japan. Going Forward… Hybrid Foreign Banks Shinsei Mega Banks Small Old Large LTCB Variety of Products Regional Banks Commodity Number of Customers 4 3 Pillar Strategy Our strategy is based on 3 core customer-centric business lines supported by world-class infrastructure, risk management and corporate governance Institutional Banking 9 Unique hybrid commercial and Retail Banking investment banking model 9 Attractive and innovative value 9 Value-added solutions to targeted Institutional proposition customers Banking 9 Strong brand development 9 Integrated teams of product specialists and relationship 9 Highly efficient bricks and clicks Retail distribution model managers for quick and efficient Banking delivery Customers Consumer and Commercial Finance 9 Business scale increase via Consumer acquisitions and 9 Implementation of Shinsei’s expertise Commercial and know-how 9 Synergies with Institutional / Retail Finance Banking businesses Risk Management Corporate Governance Modern IT Platform 5 Shinsei Solutions to Meet Customer Needs Customer Needs Shinsei Solutions Institutional Customers Institutional Customers Assets Liabilities Business Reorganization Institutional Securitization Commitment Line Asset Management Banking Structured Depo Loans, Leasing Risk Management Investment Trust Loan Syndication Cost Effective Funding Credit Trading Property Finance Consumer M&A Advisory Private Equity Balance Sheet Improvement and NRL, Project / Leveraged Finance Business Expansion, M&A Commercial Finance Forex, CP, Derivatives Individual Customers Individual Customers PoweredOne Structured Depo Higher Returns 24x7 Free ATM Services Lower Costs Retail Banking PowerSmart Flexible Housing Loan Ease of Use Convenience Extended Banking Hours, Online Banking Pre-selected Range of Products Investment Trusts, Annuities 6 Shinsei Corporate Governance Highly transparent management and strong monitoring function 9 Adoption of company with committees board model from June 2004 9 Clear separation of business execution function from strategy development and monitoring function 9 17 Directors, including 13 outside directors 9 14 Statutory Executive Officers, including two directors Three Committees (Nomination, Compensation, Audit) comprised of a majority of outside directors Effective practice of internal audit 9 Report to both CEO and Audit Committee, independent of the audited business units 9 Received the Institute of Internal Auditors Japan (IIAJ) Chairman's Award in September 2005 7 Shinsei Human Capital Equal opportunities employer Unique Blend of Talents Shinsei staff as of December 2005 Seniority-system abolished Ex-LTCB: 50% Mid-career: 40% Specialized skills and experience promoted New Grads: 10% Male vs Female: 53% vs 47% Japanese vs non-Japanese: 94% vs 6% Continuous learning culture % of female managers: 16% Active mid-career hiring Unique blend of backgrounds and cultures 8 Shinsei IT Low cost, standard off the shelf components Leveraging the internet to move work to the lowest cost location possible Collaborating with virtual teams in India, Singapore, Malaysia Standard re-usable building blocks to ensure speedy and timely delivery Totally paperless process Control by machines to reduce friction in operations Standard processes to improve productivity Leverage technology to make process repeatable and scalable 9 Shinsei International Strategy Rationale Filter / Trigger International Opportunities I. Earnings Quality and Diversification Broaden the Shinsei franchise Core Competencies Generate opportunistic P&L Investments Japanese Client and Market II. Capital Deployment Knowledge Deploy a disciplined amount of Risk Capital, and diversify earnings stream Risk Assessment and Asset Partnerships Valuation Monetize Country Risk capacity (unused resource) Financial and Portfolio Investments Acquisitions III. Ongoing Development Business Transformation Maintain a continuing “window” on financial technology. Technology and Process Advisory Management Build affiliations with “like- minded” institutions, for synergy, including for Japan opportunities. 10 Differentiation Through Innovation Agenda 1. A different kind of Japanese Bank 2. Institutional Banking 3. Consumer and Commercial Finance 4. Retail Banking 5. Conclusion 11 Relationships and Products Universe of Relationships Corporates Financial Real Estate Public Sector Institutions New Securitization Asset Classes Loan Syndication Capital Markets Distribution Wealth Management Growth Areas Asset Management Securitization Non-recourse Lending Credit Trading Stable Base 12 Relationships – Corporates Segment the customer base and ensure that each relationship receives the appropriate level of service and time Previously Principles of the New Organization # of Customers Industry Account Segmentation Only Segmentation Strategy Previously • 4,000+ customers covered by 200 RMs Industry 1 Custom tailored, per client Key perspective Industry 2 Currently • 2,000 customers Industry 3 covered by 164 RMs Short list of core (Spend 90% of Time Here) Priority Industry 4 clients Industry 5 Industry and needs Industry 6 focused organization Corporate and the remaining 2,000 + developing the rest customers are covered, of the business • No differentiation in terms but not as closely of time spent on (Spend 10% of Time Here) customers by RMs 13 Relationships – Real Estate Finance Unique needs of this sector require a completely integrated coverage approach Coverage Customer Needs Shinsei Solutions Credit Product Team Real Estate Stable and flexible Corporate Loan funding Syndicated Loan M&A Improve Balance Construction Derivatives Sheet REIT Finance Securitization (CMBS/RMBS) Expand Business NRL AMD & Wealth Hotel Domain Management Other Product Unit Structured Product Team Real Estate Finance Division integrated with the real estate, construction, and hotel-related Corporate Banking Business Divisions, to form comprehensive Real Estate Finance Sub-Group (REFS). We can now increase product penetration into existing accounts and increase new accounts through development of innovative schemes (e.g. nursing home finance, apartment loan financing, MBS, etc.) 14 Relationships – Public Sector Finance Over the next 10 years we will see more innovation in this sector than anywhere else in Japan. We have a great brand and are positioning to capitalize on it. Customer Segments Customer Needs Shinsei Solutions Bilateral Loans Government Constant raising of cheap Current Solutions funds Agencies Syndicated Loans Non-Recourse Loans Diversify fund-raising Municipalities sources Bond Issuance Securitization Growth Areas Affiliated Efficient balance sheet PFI Corporations Ultra-long term Funds Created Public Sector Finance Sub-Group (PSF) in May 2005 PSF oversees, and centrally coordinates, the activities of all Public Sector RMs, both in the Headquarters and in the various branches 15 Relationships – Health Care Healthcare Market Market Background Limited Competition Total 164,490 Funding Needs Still a wide-open battlefield Total (¥T) 35 y Needed to Reconstruct the aging hospital facility Aozora Bank No. of Firms y Needed to Change the equipment for new bed y Alliance with consulting firm Healthcare 9000 Mediva Corporations standard Tokyo Star Bank Improving the credibility of hospital accounting y NRL to nursing care corp. 92000 Clinics y Implement of Hospital Hospitals accounting standard RBS y Whole Business Securitization y Tendency to accept an external auditing Dental Orix Clinics y Wide range of businesses but 63000 Changing the banking standard of hospital with small transaction sizes valuation 330 City/Regional Banks Healthcare corps y From only secured by 160 y Bank Loans