Mizuho Draws FSA Ire Saying Official Knew of Crime Loans

Mizuho Financial Group Inc. (8411) said a former top executive knew it was lending to crime groups three years ago, reversing its stance that only compliance officials were aware and drawing further ire from the financial regulator.

Satoru Nishibori, president of Mizuho’s banking unit at the time, knew of the loans in 2010, President Yasuhiro Sato said at a news briefing in Tokyo yesterday. The Financial Services Agency, which last month ordered Mizuho to improve its business, said it was “extremely regrettable” that Japan’s third-largest bank by market value bank gave incorrect information. Shares of the bank fell as much as 3.4 percent to 199 yen in Tokyo.

The admission underscores the ties between yakuza gangs and the Japanese financial industry six years after the Financial Services Agency punished Mitsubishi UFJ Financial Group Inc. (8306) for doing business with the groups for decades. Sato apologized, saying he bears responsibility even though he was only made aware of the loans in March during the FSA’s probe.

“The bank’s reputation risk just got bigger with this report correction,” said Shinichi Ina, an analyst at UBS AG in Tokyo. “This problem may harm the good reputation that Sato created” since he became president in 2011.

Source: Jiji Press/AFP/Getty Images

Yasuhiro Sato, president and chief executive officer of Mizuho Financial Group Inc., speaks to the press at the Bank of Japan headquarters in Tokyo on Oct. 8, 2013. Close

Yasuhiro Sato, president and chief executive officer of Mizuho Financial Group Inc.,... Read More

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Source: Jiji Press/AFP/Getty Images

Yasuhiro Sato, president and chief executive officer of Mizuho Financial Group Inc., speaks to the press at the Bank of Japan headquarters in Tokyo on Oct. 8, 2013.

The FSA will take appropriate action after Mizuho and an independent panel commissioned by the bank complete investigations, the agency said in a faxed statement.

Shares of Mizuho closed 1 percent lower at 204 yen, paring this year’s gain to 30 percent. That compares with the benchmark Topix Index (TPX)’s 36 percent jump.

Top Management

Top management were aware of the transactions, Mizuho said in a statement yesterday, contrary to earlier comments and findings by the FSA that only the “executive in charge” had knowledge. Deputy President Toshitsugu Okabe told reporters on Oct. 4 that four senior executives responsible for compliance at the time knew about the loans and didn’t inform superiors.

The regulator ordered Mizuho Bank Ltd. to improve compliance on Sept. 27, saying it failed to take steps to end loans to crime groups for more than two years after becoming aware of them. The bank made 230 loans, mostly for automobiles, valued at about 200 million yen ($2 million), through its Orient Corp. (8585) consumer credit affiliate.

Sato, 61, said he was in a position where he could have found out about the loans in July 2011, when reports mentioning the transactions were distributed at a board meeting. He will step down from a government advisory panel on industrial competitiveness, he said.

Nishibori, 60, who was president of Mizuho Bank for about two years until June 2011, is now an adviser to the financial group. Mizuho declined to make him available for comment.

Independent Panel

Mizuho has set up an internal committee and a panel of three outside experts to improve compliance. Hideki Nakagome, a former High Court chief justice, will lead the external probe, according to the statement. Nakagome previously investigated accounting fraud at Olympus Corp. (7733) and information leaks by Nomura Holdings Inc. employees to insider traders.

The bank must submit a report to the FSA by Oct. 28 showing how it plans to improve operations. It last received a business improvement order in 2011 after a computer glitch delayed transactions following the nation’s record earthquake.

Credit Rating

Standard & Poor’s said today that Mizuho’s credit rating won’t be affected by the correction of its report to the FSA or by the business improvement order, citing the “small” amount of transactions with crime group members. Still, revenue may be hurt if the regulator takes further action or the bank’s “lost business becomes substantial,” S&P said in a statement.

Japan has stepped up efforts to combat yakuza gangs, whose activities range from extortion to drug trafficking, according to the National Police Agency. Ordinances came into effect nationwide in 2011 banning Japanese companies from doing business with the yakuza that would result in profit for the organizations. The rules give local authorities the power to fine or imprison enterprises that refuse to stop relations with the gangs.

In 2007, the FSA ordered Mitsubishi UFJ’s banking unit to suspend some operations for a week after finding that a branch in Hyogo prefecture, western Japan, did business with a crime group for more than 30 years.

To contact the reporters on this story: Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editor responsible for this story: Russell Ward at rward16@bloomberg.net

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