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Shinsei Bank Quantifies Impairment Values; Estimates Impact on Fiscal 2006 Results Summary of QA Session

April 3, 2007 17:30 - 18:15 (Tokyo)
Speaker: Thierry Porte, President and CEO

Q1.

Regarding the current consumer finance industry environment, affected companies have already increased reserves for possible losses on reimbursement of excess interest payments. For loans that have already been repaid, borrowers could make a claim on refunds for excess interest payments; in the case of APLUS, do you think you have provisioned enough to cover potential grey-zone interest claims in the future?

From what we know at this point, we believe that we do.

Q2.	In regards to APLUS, goodwill has been amortized annually between 20 billion yen to 35 billion yen. After impairment has been recorded total consolidated goodwill will have reduced 45%, and after March 2008, consolidated goodwill will have halved?

That's about right.

Q3.	On slide 13, you have shown that the breakdown of the changes in your results, including credit costs and Shinki net loss, but for these items does it mean the environment was worse than you had expected Is that the reason for these figures? This is to confirm.

Your interpretation is correct.

Q4.	In calculating impairment, I would like to confirm that you used cash flow projections and a perpetual growth rate of 2%. I believe that the assumption made in your calculations is up to 10 years until terminal growth. What is the assumption for growth rate in meeting this calculation?

Yes, one of the assumptions that we have used is a 2% perpetual growth rate to arrive at the terminal value. After the 10-year period we use the 2% perpetual rate, but for the 10-year period we have a detailed forecast projection for every year.

Q5.

Concerning the impairment of your intangible assets, quite a large proportion will be impaired. I believe there are three types of intangibles, as far as I recall - alliance, intangibles, or what is the exact breakdown? Is that on a pro rata basis, or is there any difference among the three different types of assets? If so, does it mean that one of those items is not impaired completely, or does the impairment cover all items?

There are trade name and trademark, customer-related asset and merchant related assets, and that is divided by different products or by merchant, and is calculated for each case separately. There are some items that are impaired completely.

Q6.

Regarding preferred shares (except for the recently issued Class F preferred shares), you have Class B, C and E preferred shares. For each of these share classes, what is the amount of impairment respectively, and how about the percentage of impairment among these different classes? How about Class D preferred shares? You did not take impairment?

Class B and C - Shinsei owns 100% of these shares, and we have taken impairment for all of these preferred shares. And we also have Class E preferred shares - worth 140 billion yen, and we impaired our investment in Class E as well. That is all. This time around we did not include Class D for impairment.

Q7.

With all these measures in respect to APLUS, the necessary accounting measures I think were done for this year and as your next theme for APLUS, what about APLUS'top line? How are you going to strengthen the top line for APLUS going forward? At present, you now have new top management, and you are moving forward with restructuring, so as far as you can update us, what are your measures to improve or strengthen the top line?

That is an ongoing effort, and at some point in the relatively near future, we will get together with you to discuss that. I think that there are a number - first of all, we are working on completely revamping the business model of APLUS, and beginning new initiatives. One of those initiatives is an APLUS Visa credit card, which is being offered through Shinsei Bank. We will continue to look at new partnerships. There are several new partnerships which I am not in a position to disclose today that are in the pipeline, and a series of other measures in terms of growth strategies that we will need to address. But the other aspect with regard to the top line that needs to be mentioned is that there are many practices in Shinpan industry, as I am sure you all know, that have not been particularly favorable from a profitability point of view, and given the difficulties that the entire industry is facing, there is going to be a reassessment of pricing in the industry in all of the segments of the Shinpan business. That is going to have an important impact ultimately on revenue and profitability, and that is a major focus of our current activity.

Q8.	Concerning impairment, returning to the question concerning other intangible assets and in particular the impairment of your merchant-related assets. Are you reviewing the importance of the merchant relationships and reassessing its value?

Yes, in principle, yes. Of course, it must be assessed by a third party, but that was the background leading to this result.

Latest Revision: April 25, 2007

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