Moody's downgrades Shinsei Bank's financial strength

Moody's downgraded Shinsei Bank Limited's bank financial strength rating to D- from D+.

Moody's view that Shinsei Bank's fundamental credit profile, as represented by its BFSR, will continue to face considerable challenges in its quest to stabilize earnings and execute its management plan, in light of not only the bank's limited franchise, but also because of the severe operating environment for the consumer finance industry.

It also downgraded its base line credit assessments to Ba3 from Ba1, the long-term  senior unsecured and deposit ratings to Baa3 from Baa1, the bank's senior subordinated debt to Ba1 from Baa2, its junior subordinated debt to Ba2 from Baa3, the non-cumulative Tier 1 preferred securities issued by its wholly owned subsidiaries to B3 from B1, and its short-term deposit rating to P-3 from P-2.

The outlook for the BFSR and the non-cumulative Tier 1 preferred securities rating is negative, while that for the bank's supported ratings is stable.

Moody's also believes that the bank's ability to raise a meaningful amount of capital over the short term is limited, and that it will need a considerable amount of time to restore its capital base.

On the other hand, the bank's deposit ratings, senior unsecured ratings, as well as the senior and junior subordinated ratings reflect Moody's view of the continuing high likelihood of systemic support being provided to Shinsei in the event of stress. For this reason, these ratings carry a stable outlook.

In the wake of a second year of large net losses, Shinsei has reshuffled its management team and announced a new three-year medium-term management plan, according to which the bank will rebuild its customer franchise in Japan and stabilize its earnings base.

However, because of the severe competition in the domestic wholesale and retail banking businesses and Japan's weak recovery in economy, the bank will find doing so within a reasonable amount of time quite a challenge,in Moody's view.