Shinkin International August 2009 Introduction and Analysis
Shinkin International2 Contents Shinkin Banks3 Japan ’ s Private Financial Institutions 4 Size and Performance of the Shinkin Banks 5 Shinkin Central Bank7 Shinkin International Ltd12 MTN Arranging Record13 Analysis of Deal History 14 Analysis of Deals Executed in 200818 Issuers Placed19 Current Investment Trends 23 Milestones for Shinkin International 24 Summary25 Contacts26
Shinkin International3 Shinkin Banks Shinkin banks ( “ credit banks ” ) are cooperative financial institutions whose members are individuals and small/medium sized companies. Shinkin banks (governed by Shinkin Bank Law) operate in a similar way to commercial banks but in principle restrict lending to members. As at March 2008 there were 281 shinkin banks with a total of 7,686 branches throughout Japan. Membership stands at around 9.28 million and deposits total ¥ 114 trillion (approx. US$ 1,135 billion) as at March 2008 - over 15% of the total deposit market in Japan.
Shinkin International4 Japan ’ s Private Financial Institutions
Shinkin International5 Size of the Shinkin Banks (US$bn equivalent as at March 2008) City Banks 2,496 Regional Banks 1,952 Shinkin Banks 1,135 Second-tier Regional Banks 554 Credit Cooperatives 163 Labour Credit Associations 151 819 Agricultural Cooperatives Deposit Balances by Sector Sources: Japanese Bankers Association, Norinchukin Bank, National Central Society of Credit Cooperatives, National Association of Labour Banks and SCB 459 times 136 times 192 times 145 times Sources: Bank of Japan, Japanese Bankers Association Deposit Growth by Bank Sector （ From March 31,1955 to March 31,2007 ） Number of Domestic Branches （ as of March 31,2008 ） Note: For regional banks, second-tier regional banks and city banks as of September 30, 2007 Sources: Japanese Bankers Association, National Central Society of Credit Cooperatives, National Association of Labour Banks and SCB
Shinkin International6 Capital Adequacy Ratio by Bank Sector （ As of March 31,2008 ） Non-performing Loan Ratio of Shinkin Banks (%) Capital Adequacy Ratio of Shinkin Banks Performance of the Shinkin Banks Growth in Number of Shareholders （ Millions ） Note: US$ figures have been derived from JPY using FX rate prevailing as at March 31 in each year Source: SCB Source: SCB Note: City Banks –Consolidated BIS Capital Adequacy Ratio Others – Non-consolidated Capital Adequacy Ratio (domestic standard) Sources: Bank disclosure document/ Regional Banks Association of Japan/ The Second Association of Regional Banks Source: SCB
Shinkin International7 Shinkin Central Bank Shinkin Central Bank ( “ SCB ” ) was established in 1950 to act as a central bank for all the shinkin banks in Japan but also acts as a financial institution in its own right. The bank balances funding supply and demand among the shinkin banks and provide settlement and operational support. SCB is one of Japan ’ s largest institutional investors. As at March 2008, the bank had assets of ¥ 28tn (USD 276bn). SCB ’ s consolidated BIS Capital Adequacy Ratio stands at 15.95% and the non-performing loans ratio is 0.27% (as at March 2008). SCB is the 94th largest bank in the world in terms of Tier 1 Capital strength (The Banker July 2008).
Shinkin International8 Shinkin Central Bank – Group Structure Number 281 Assets ¥ 120trn Branches 7,686 Employees 112,362 Members 9,255,468 Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin Bank Shinkin bank customers Total Assets¥28trn (US$276bn) Offices Domestic 13 Overseas 4 Employees1,066 Members281 Shinkin banks SCB
A1 Shinkin International9 Shinkin Central Bank – Ratings SCB has maintained strong and stable long-term ratings during the last decade and avoided the Japanese financial crisis of the late 90s/ early 00s: A2 A3 Baa1 Source: Bloomberg Aa3 Baa2 Moody’s Rating Comparison Aa2
Shinkin International10 Shinkin Central Bank – Funding and Assets (\ 25,669100.0% Short-Term Markets 2,432 9.5% Loans & Bills Discounted 5,85322.8% Securities 16,76565.3% Cash in Trust & Others 6192.4% Asset Management (\Billion) 25,115100.0% Deposits 18,63374.2% Negotiable Deposits 810.3% Debentures 4,460 17.8% Borrowed Money 1,941 7.7% Fund Raising As at 31/3/08 Billion) As at 31/3/08 Asset Management Securities Held
Shinkin International11 Shinkin Central Bank – Financial Soundness Note: Ratio = Total Expenses / Average Balance of Deposits + CDs + Debentures Source: Japanese Bankers Association Funds per Employee （ As of September 30,2007 ） (US$ Millions) Capital Adequacy Ratio （ As of March 31,2008 ） Non-performing Loans Ratio （ As of September 30,2007 ） Expenses Ratio （ As of September 30,2007 ） Note: Total Funds = Deposits + CDs + Debentures Source: Japanese Bankers Association Note: SCB – City Banks – Average of financial holdings Source: Bank Disclosure Documents Note: Ratio = Total risk-monitored loans/ Total loans Source: Financial Services Agency
Shinkin International12 Shinkin International Ltd Shinkin International Ltd (a wholly owned subsidiary of Shinkin Central Bank) was established in London in 1990 as an overseas base for securities business. The main goals of the company are to arrange and place private EMTN draw-downs, to trade secondary eurobonds and to provide broad investment opportunities. These activities are driven by the combined requirements of Shinkin Central Bank individual banks among the extensive shinkin network (approximately 80% of shinkin banks have bought EMTNs) other investors in Japan and elsewhere. We are regulated in the UK by the Financial Services Authority.
Shinkin International13 MTN Arranging Record 200420052006 2007 2008 2009* Number of New Issues12930112825617282 Vanilla19663614310363 Structured110235921136914 Number of Issuers567658785533 Volume (¥ bn)156535177521333188 Vanilla3815469439287181 Structured11838110882467 Number of Tickets15637716027019689 Average Issue Size (¥ bn)220.127.116.11.01.92.3 Average Ticket Size (¥ bn)1.01.41.11.91.72.1 * as at 30/7/09
Shinkin International14 Analysis of Deal History Shinkin International Limited has been successfully arranging MTNs for Japanese wholesale investors since 1996. Deal flows built up to a peak in 2002 and the early part of 2003 but a drop in the number of deals being called has made it more difficult to sell structured notes since then. Significantly higher deal numbers and volumes achieved in 3 of the past 4 years due to bullet transactions which are now mostly vanilla.
Shinkin International15 Analysis of Deal History JPY has always been our most important issuance currency since many of our investors only have domestic operations in Japan. Extended marketing coverage in 2004 resulted in more USD flow but activity now limited by investor funding constraints. EUR deals executed in 2005 due to some exceptional bullet investments. Proportion of callable business has declined since 2003 and last year accounted for just 14% of the total amount issued (but still 40% in terms of the number of transactions executed).
Shinkin International16 Analysis of Deal History – Risk Weight Historically a majority of issues have been for 20% risk-weighted entities, but since 2006 we have executed a significantly higher proportion of trades with 50% and 100% risk-weighted Japanese entities. Until Q4 2008 0% risk-weighted issuance mostly comprised structured callable deals - since then vanilla government guaranteed bank debt has been more important. *Basel I methodology until 2006, Basel II thereafter
Shinkin International17 Analysis of Deal History – Products In the early 2000s the majority of trades were callable Step-Up Reverse Floaters and Power Reverse Dual Currency bonds but in 2004-7 structures became notably more diverse. In the past two years volumes have been dominated by vanilla flows. PRDC and Nikkei-linked issues are normally for small amounts but until Q4 2008 still generated a significant proportion of fee income. Although many Step-Up Reverse Floaters are now getting called, in the current climate there is little expectation of an early return to structured investment.
Shinkin International18 Analysis of Deals Executed in 2008 A successful year in difficult circumstances with business dominated by relatively large JPY- denominated vanilla issues. Structured issuance remained an important component of deal flow until September with Reverse Dual Currency structures most favoured. Little demand for JPY Step-Up Reverse Floaters despite increase in call ratio towards the end of the year as interest rates fell. Non-JPY investments prevented by higher wholesale funding costs. More buyback requests received than normal but only 5 issues were fully or partly redeemed.
Shinkin International19 Issuers Placed In total Shinkin International has arranged MTNs for 204 different issuers since 1996. For the majority of these issuers we provide regular financing - in 58% of cases 3 or more transactions have been executed and there are 9 issuers benefitting from over 40 completed trades. Since 1999 we have added an average of 19 new issuers every year.
Shinkin International20 Issuers Placed – Geographical Distribution 50% or 100% risk-weighted short-dated vanilla issuance for Japanese entities currently accounts for the majority of our executed business but we are still seeing demand for non-Japanese credits. Approximately 42% of all our issues have been arranged for the core European countries of Germany, France and the Netherlands plus the UK. A total of 291 trades into Canada and Luxembourg executed with only 12 entities. *Location of parent if subsidiary
Shinkin International21 Issuers Placed – Vanilla bonds ALLIED IRISH BANKS 2007* AMERICAN HONDA 2002 BANK AUSTRIA CREDITANSTALT 2007 BANK OF IRELAND 2008 BANK OF NOVA SCOTIA 2008 BANQUE PSA FINANCE 2003 BBVA SENIOR FINANCE 2006 BMW JAPAN FINANCE CORP 2007 BMW (UK) CAPITAL 2007 BOT LEASE CO LTD 2004 CIBC 2007 CHUBU ELECTRIC 2003 COCA COLA AMATIL 2001 CENTURY LEASING SYSTEMS 2005 DAIMLER CHRYSLER AG 2002 DAINIPPON INK AND CHEMICAL 2002 DEVELOPMENT BANK OF JAPAN 2009 EDF ENERGY PLC 2004 EFG HELLAS PLC 2004 EUROMOL BV 1999 FINANCE FOR DANISH INDUSTRY 2007 FORTIS BANK 2007 FUJI PHOTO 2000 FUJITSU EMEA 2005 GMAC AUSTRALIA 2003 GMAC INTERNATIONAL FINANCE 2003 HITACHI CAP AMERICA CORP 2004 HITACHI CAPITAL (UK) 2007 HITACHI FINANCE 2001 HITACHI INTERNATIONAL 2003 HSH NORDBANK 2005 IBERDROLA FINANZAS 2005 INDUSTRIAL BANK OF KOREA 2002 INTESA SANPAOLO 2007 ITOCHU FINANCE (EUROPE) 2006 KAJIMA CAPITAL OF AMERICA 2003 KOBE STEEL (AMERICA) 1999 KOBE STEEL (NETHERLANDS) 2003 KOMATSU EUROPEAN CC 2006 KOMATSU FINANCE AMERICA 2002 KOMATSU (NETHERLANDS) 2002 KONICA CORP 1999 KONICA MINOLTA FIN USA 2004 KBC IFIMA 2008 LBANK RHEINLAND PFALZ 2005 LVMH JAPAN KK 2006 MARUBENI EUROPE 2006 MARUBENI FINANCE HOLLAND 2007 MARUBENI INTL FINANCE 1999 MITSUBISHI ELECTRIC 2002 MITSUBISHI UFJ LEASE 2006 MITSUI & CO (UK) 2001 MITSUI &CO (USA) 2003 MITSUI FUDOSAN 1997 MITSUI OSK FINANCE 2002 MITSUI OSK LINES 2008 MMC INTERNATIONAL 1999 MONEX BEANS HOLDINGS 2007 NATIONAL AUSTRALIA BANK 2007 NIPPON YUSEN KABUSHIKI 2002 NISSAN 1998 NISSHO IWAI 1997 NKK CAPITAL 2000 NKK CORPORATION 2000 NORDDEUTSCHE LBANK 2005 NORDEA BANK 2007 OERESUNDSFORBINDELSEN 2005 ORIX AUSTRALIA 2006 ORIX USA CORP 2002 PLASMA LIMITED 2009 RCI BANQUE 2007 REICHHOLD 1998 RENAULT CREDIT 2001 SANTANDER INTL DEBT 2006 SCOTTISH & NEWCASTLE 2001 SEVERN TRENT PLC 2001 SHIMUZU INTERNATIONAL 2000 SUMI MITSUI FIN & LEASING 1999 SUMISHO LEASE 2002 SUMITOMO CHEMICAL (UK) 2007 SUMITOMO CORP AMERICA 2005 SUMITOMO CORP CAP ASIA 2006 SUMITOMO REALTY 2003 SUNTORY EUROPE 2007 SWEDBANK 2007 TEIJIN HOLDINGS NETH 2005 TOKYU CORPORATION 1999 TORONTO DOMINION 2000 TOSHIBA INT FIN (NETH) 2000 TOSHIBA CAP CORP (ASIA) 2002 TOKYO LEASING 2007 UNICREDITO ITALIANO 2008 VATTENFALL 2000 VIVENDI ENVIRONMENT SA 2001 VOLVO TREASURY 2005 VW FINANCIAL SERVICES 2004 * Year of first transaction
Shinkin International22 Issuers Placed – Structured Notes ABBEY NATIONAL PLC 1998* ABN AMRO N.V. 1999 AFRICAN DEVELOPMENT BANK 2002 ANZ BANKING GROUP LIMITED 2003 ARGENTARIA 1997 ARTESIA 2001 ASIAN DEVELOPMENT BANK 2005 AUSTRIA (REPUBLIC OF) 2002 BACOB 1997 BANK FUER ARBEIT UND WIRTSCHAFT 2001 BANK NEDERLANDSE GEMENTEN 2002 BANK OF SCOTLAND 2004 BANK OF YOKOHAMA 2000 BARCLAYS BANK PLC 2004 BAYERISCHE LANDESBANK 1998 BAYERISCHE VEREINSBANK 1997 BCEE 1998 BCL INTERNATIONAL 2001 BGB FINANCE (IRELAND) PLC 1998 BUSINESS DEVELOPMENT BK OF CANADA 2001 CADES 2003 CAISSE CENTRALE DESJARDINS 1999 CALYON 2004 CALYON FINANCE (GUERNSEY) LIMITED 2005 CANADIAN WHEAT BOARD 2001 CDC IXIS CAPITAL MARKETS 1999 CHRISTIANIA 1997 CNCEP 2001 COMMONWEALTH BANK OF AUSTRALIA 2005 COMMERZBANK 1999 COMP DE FINANCEMENT FONCIER 2002 CREDIOP 2001 CREDIT AGRICOLE INDOSUEZ 2004 CREDIT AGRICOLE SA 2006 CREDIT SUISSE INTERNATIONAL 2007 DANSKE BANK 2005 DNB NOR BANK 1997 DEPFA BANK PLC 2005 DEPFA DEUTSCHE PFANDBRIEF 2003 DEPFA ACS BANK 2004 DEXIA BIL 2001 DEXIA CREDIT LOCALE 2001 DEXIA FUNDING NETHERLANDS 2002 DEXIA MUNICIPAL AGENCY 2005 DEUTSCHE BANK 2004 DRESDNER BANK 1998 DZ BANK 2006 EKSPORTFINANS 1999 EUROHYPO 2005 EXPORT DEV BANK OF CANADA 1999 EXPORT FIN & INSURANCE CORP 1999 FARM CREDIT CANADA 2002 FIRST CHICAGO TOKIO MDP 1999 FMO 2000 FORTIS BANQUE LUXEMBOURG 1999 HAMBURGISCHE LANDESBANK 2001 HYPO ALPE-ADRIA BANK 2001 HYPO TIROL 2003 ING BANK NV 2004 INTER-AMERICAN DEVELOPMENT BANK 2008 INTL FINANCE CORPORATION 2001 INSTITUTO CREDITO OFICIAL 2002 KFW 2000 KOMMUNALBANKEN 2001 KOMMUNALKREDIT 2002 KOMMUNEKREDIT 2001 KOMMUNINVEST 2000 LANDESBANK BADEN-WURTTEMBERG 1999 L-BANK 2004 LLOYDS TSB BANK PLC 2001 MERRILL LYNCH & CO 2006 MITSUBISHI CORP FINANCE 2004 MITSUI & CO FIN SERVICES (EUROPE) 2005 MUNICIPALITY FINANCE 2002 NATIONWIDE 1996 NATIXIS 2007 NEDERLANDSE WATERSCHAPSBANK 2002 NEW SOUTH WALES TREASURY CORP 2002 NIBC BANK 1999 NORTH RHINE – WESTPHALIA 2003 NORDIC INVESTMENT BANK 2005 OBEROESTERREICHISCHE LB 2002 OESTERREICHISCHE KONTROLLBANK 2005 PFANDBRIEFSTELLE 2004 RABOBANK 1999 RENTENBANK 2001 ROYAL BANK OF CANADA 2005 ROYAL BANK OF SCOTLAND 2000 SE BANKEN 1997 SGA SOCIETE GENERALE 2004 SUMITOMO CORP CAPITAL EUROPE 2004 SUMITOMO CORP CAPITAL NETHERLANDS 2000 SWEDBANK MORTGAGE 2004 SVENSKA HANDELSBANKEN 1999 SWEDISH EXPORT CREDIT 2000 TOYOTA MOTOR CREDIT CORPORATION 2008 VENANTIUS 2000 VORALBERGER LANDES-HYPO 2001 WESTLAND UTRECHT HYPO 1999 WESTPAC BANKING CORP 2004 * Year of first transaction Note: for some issuers we have arranged both vanilla and structured notes but they are only shown in the relevant list for the first transaction.
Shinkin International23 Current Investment Trends Our wholesale investors have maintained good JPY liquidity from domestic savings accounts throughout the credit crunch but have been very selective about making EMTN investments. Up until 9/7/09 demand concentrated on vanilla issues by government guaranteed banks, government related AAA issuers and Japanese credits (only 3% of trades were callable structures) – these included several large tickets that boosted average deal size. But, following the sharp tightening of credit spreads for top-quality credits, investors are beginning to execute structured deals again (inverse floaters and reverse dual currency in particular). Although there are still difficulties in executing underlying derivatives we believe this trend will continue – many bonds called in H1 2009 have not yet been replaced by investors. Overall bond turnover at Shinkin Banks has recovered from the depressed levels experienced in 2006-7 (see graphs). JPY100 Million Source: Japan Securities Dealers Association
Shinkin International24 Milestones for Shinkin International 1996: 1st MTN Issue - Nationwide Building Society 1999: 1st Issue for an Agency - Export Finance and Insurance Corp 1999: 1st Appointment to a Dealer Group - Mitsubishi Motors 2001: 1st Issue for a Supra-national - International Finance Corporation 2002: 1st Issue for a Sovereign - Republic of Austria 2003: 1st Nikkei-Linked Issue 2004: Total of arranged transactions passes JPY 1 trillion (USD 9.1bn) 2005: 1000 th EMTN transaction executed 2005: A record 301 deals completed with total volume of JPY 535bn 2007: 1st Uridashi Issue - Eksportfinans 2009: Largest issue to date – Lloyds TSB JPY 29.3bn
Shinkin International25 Summary Shinkin is a co-operative financial network of local banks located throughout Japan servicing individuals and small/ medium sized businesses. Shinkin Central Bank acts as a central bank for all the shinkin banks and is one of Japan ’ s strongest banks, reflected by its Aa2/A+ rating. With deposits totaling USD 1,135 billion equivalent, Shinkin banks are active investors and, with assets of JPY 28 trillion, SCB is also one of Japan ’ s largest institutional investors. Shinkin International ’ s relationships with SCB and the extensive shinkin bank network provides natural distribution for EMTN product. Shinkin International ranks 6rd as a provider of JPY vanilla EMTNs in Q1 2009 (MTNi).
Shinkin International26 Contacts Shinkin International Ltd. 4th Floor, River Plate House, 7-11 Finsbury Circus, London EC2M 7YA Managing Director Hiroyuki Toda +44 (0)20 7562 0501 Head of Capital Markets Takuya Sakamoto +44 (0)20 7374 4633 Associate Director, Origination David Scott +44 (0)20 7374 4633