Shinsei To Boost Capital by Preferred Securities

TOKYO (Reuters) – Shinsei Bank (8303.T), a struggling midsize Japanese lender, said on Friday it would issue an unspecified amount of preferred securities to shore up its capital base.

The bank, about one-third owned by U.S. buyout firm JC Flowers & Co, has been whiplashed by bad bets on U.S. subprime loans and other overseas investments, sending its share price down 80 percent in 15 months.

Shinsei said it would issue yen-denominated preferred securities to domestic institutional investors. The terms of the issue have yet to be decided.

It will also issue preferred securities to investors through a scheme with its financing firm Aplus (8589.OS), of which Shinsei owns about two-thirds.

Analysts had expected Shinsei to announce fundraising plans after chief executive Masamoto Yashiro said he wanted to raise capital before the financial year ends on March 31.

The 80-year-old Yashiro led the bank from 2000 to 2005 and returned in November after his American successor, Thierry Porte, resigned to take responsibility for mounting losses.

Shinsei expects to lose 48 billion yen ($490 million) in the year to March 31, compared with the 62 billion yen profit it originally forecast. It would be its second full-year loss in three years.


Yashiro, who aims to return Shinsei to a lower-risk model focused on domestic lending, has said he wants to boost the bank’s Tier 1, or core capital ratio, to 7 percent by the end of this financial year.

Shinsei’s Tier 1 stood at 6.6 percent by the end of December, well below its larger rivals. Mitsubishi UFJ Financial Group (8306.T), Japan’s largest bank, had a Tier 1 ratio of 7.5 percent.

The preferred securities issued directly to investors will count toward Tier 1 capital, Shinsei said.

In addition, financing firm Aplus will buy back some of its preferred shares from investors, who will then take Shinsei’s preferred securities.

That switch will boost the bank’s Tier 1 ratio because the securities count towards Tier 1 while the shares do not, Shinsei said.

Aplus will also issue new preferred securities directly to Shinsei, the bank said.

Shares of Shinsei fell 8.1 percent before the news, ending at 80 yen in Tokyo trade.

(Reporting by David Dolan; Editing by Hugh Lawson)