Moody’s affirms Shinsei Bank’s A3 rating with negative outlook

Tokyo, July 02, 2009 -- Moody's Investors Service has affirmed Shinsei 
Bank, Limited (Shinsei)'s ratings, while the ratings outlook remains 
negative. The ratings affected are its D+ bank financial strength rating, 
Baa3 baseline credit assessment, A3/P-2 long- and short-term deposit 
ratings, A3 senior unsecured debt rating, Baa1 senior and junior 
subordinated debt ratings, and Baa3 preferred securities rating. 

The rating action follows the announcement on July 1, 2009 that Shinsei 
and Aozora Bank, Ltd. (Aozora) had reached an agreement to merge in 
October 2010.

Moody's considers that the proposed merger will not have an immediate
impact on Shinsei's credit fundamentals since the two banks will operate
independently until October 2010. If Shinsei and Aozora start to become 
highly integrated, then the ratings would reflect the results of their 
combined credit profiles. However, until that time, Moody's will continue 
to make its assessment based on Shinsei's own credit fundamentals.

Meanwhile, Moody's understands that the proposed merger will create
Japan's sixth-largest bank, with total assets of more than JPY18 
trillion. In addition, the merger should help improve the new bank's 
resultant cost structure through a reduction in operating expenses as 
Shinsei and Aozora integrate their headquarters and branches, and 
eliminate some overlapping businesses. 

However, Moody's notes that in light of each entity's weak franchise and 
management, as well as their relatively weak financial fundamentals,
there is a low probability of a prompt improvement in the merged bank's
competitive position and franchise.

In addition to the integration risks for both banks, the transaction may 
pose a number of other challenges, including whether the merged bank can 
restore the confidence of the market by establishing a business model 
which can generate stable earnings, particularly for the businesses
funded by wholesale funds. 

The negative outlook reflects the challenges Shinsei faces in its existing 
lines of business, including consumer finance as well as the prospect of 
future ratings convergence with Aozora.

Moody's last rating action with respect to Shinsei was on March 10, 2009, 
when the bank's rating outlook was revised to negative from stable.

The principal methodologies used in rating of Shinsei were "Bank Financial 
Strength Ratings: Global Methodology" and "Incorporation of Joint-Default 
Analysis into Moody's Bank Ratings: A Refined Methodology," both of 
which can be found at www.moodys.com in the Credit Policy & Methodologies 
directory, in the Ratings Methodologies subdirectory. Other methodologies 
and factors that may have been considered in the process of rating these 
issuers can also be found in the Credit Policy & Methodologies directory.