Restructuring / Turnaround Strategies Case Study

Shinsei Bank: A Turnaround

Abstract:
The Long Term Credit Bank (LTCB) was one of the institutions that fuelled the post-World War Japanese economic revival. The bank's core business area was in long-term debenture lending where the banks were expected to play a social role by catering to the financing needs of the corporate sector. The growing proximity between the bank and the corporate sector resulted in 'profit-motive' taking a backseat and throwing up drastic consequences after the Nikkei-crash in 1990. The bank faced a rising proportion of bad loans in its lending portfolio due to its exposure in real estate. The Japanese government introduced the Financial Rehabilitation Law in 1998 under which LTCB was nationalised on October 23rd 1998. After being sold to Ripplewood Holding Inc., a US-based private equity investor group, in 2000, the bank was re-christened as Shinsei Bank. The new entity combined the best practices of the West and the existent structure of its predecessor to carve out one of the most spectacular turnarounds.

Pedagogical Objectives:

• To understand the effect of 'social role' of banks in the Japanese banking system and how it resulted in disastrous consequences
• To discuss how an effective restructuring exercise can go a long way to revitalise operations, promote synergies in profitability, technology and business aspects, and achieve and sustain a competitive advantage.

Keywords : Shinsei Bank turnaround; Long Term Credit Bank (LTCB); Ripplewood Holdings Incorporated; Nationalisation of Long Term Credit Bank; Japanese banking system; Corporate restructuring; Effect of Nikkei crash on Japanese banking; Law for the emergency measure to revitalise financial functions; Foreign investors in Japan; Restructuring; Masamoto Yashiro; Restructuring / Turnaround Strategies Case Study; FlexCube; PowerFlex account; Capital adequacy ratio; Japanese economy