Shinsei Buys GE Out of Its Japan Consumer Lending Biz

Reviewed by Takahiro MIYAO

Article:
Shinsei Buys GE Out of Its Japan Consumer Lending Biz
Forbes.com (7/11/2008)
http://www.forbes.com/markets/2008/07/11/
ge-shinsei-consumerlending-markets-equity-cx_vk_0711markets04.html

Comments:

It is reported in the Forbes article linked above that Shinsei Bank is to buy GE's three Japanese consumer finance operations, including Lake, which is Japan's sixth-largest consumer finance company. The deal should be completed by the end of September this year, according to this article. There are two aspects that are worth mentioning about this development.

First, GE's withdrawal from Japan's consumer finance market signifies a negative effect of overregulation in that market, where the government overreacted to public criticisms against consumer finance companies' "predatory" lending practices and "excessively high" interest rates for borrowers. After introducing a cap on interest rates, the industry has become unprofitable, prompting GE and other players to exit. GE's move this time could send a signal to the Japanese government so that overregulation might be reconsidered and corrected in the near future.

There is another side of this development, however. It is a kind of irony that Shinsei, which is a product of Japan's financial crisis two decades ago, will take over GE's Japanese finance operations, which are being adversely affected by the current financial crisis resulting from the subprime loan problem in the U.S. One might say that there is a twenty year cycle of construction, housing, and finance with some time lag in affecting various markets in different countries. So, this time financial institutions based in Japan, such as Shinsei Bank, seem less affected than business institutions based in the U.S., such as GE, by the subprime loan crisis, a complete reversal from two decades ago.

Acknowledgment:
This review is adopted from the following blog (with its Japanese translation):
http://glocom.blog59.fc2.com/blog-entry-747.html