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Japanese Bank Plans Derivatives Debut

Tokyo-based Shinsei Bank, with USD76 billion in assets, plans to set up a derivatives market making department in the coming months, beginning with an interest-rate desk and expanding into equity derivatives, in an effort to boost its capital markets presence. To lead the effort, Shinsei has hired Fujita Hideyuki, an interest-rate derivatives trader at Daiwa Securities in Tokyo, said a market official. Hideyuki, who starts next month, could not be reached.

Shinsei, which means "rebirth", was formed last year from the remnants of the bankrupt Long Term Credit Bank of Japan. U.S. investment group Ripplewood Holdings purchased LTCB from the Japanese government.

The bank's interest-rate desk will start trading plain vanilla interest-rate swaps on a proprietary basis and then expand to customer flow business, according to officials familiar with the bank's business plan. It plans to staff the department with internal transfers and a couple of additional hires, according to a spokesman, who declined all further comment.

Interest-rate derivatives professionals at rival banks were split on Shinsei's chances of success. One was skeptical, given that its Baa3 rating from Moody's Investors Service and lack of derivatives client relationships presents an obstacle. Shinsei has one of the lowest ratings for a bank in Japan, he said, adding that Bank of Tokyo Mitsubishi, a large derivatives player in Japan, is rated A2. Other rival bankers said Shinsei could become a notable player if it is committed to derivatives and hires the right personnel. "It depends on the talent," one noted.

At Ripplewood Holdings, Timothy Collins, senior managing director and ceo, and Christopher Flowers, principal, were the major actors behind the acquisition of LTCB. Collins is a former investment banker with Lazard Freres & Co. and Flowers is a former senior partner and head of the financial services merger group at Goldman Sachs. LTCB was the third largest bank in Japan before it went bankrupt.