Mizuho’s Ex-Banking Unit Chief Knew of Loans to Crime Groups

Mizuho Financial Group Inc. (8411)’s loan scandal deepened after the Japanese bank said a former top executive knew it was lending money to crime groups.

Satoru Nishibori, who was president of Mizuho Bank Ltd. at the time, knew of the loans to “antisocial” groups, President Yasuhiro Sato said at a news briefing in Tokyo today. The company issued a statement saying top management were aware, contrary to earlier comments and findings by Japan’s financial regulator that only the “executive in charge” had knowledge.

The scandal 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 today, 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.

The FSA said it’s “extremely regrettable” that Mizuho gave incorrect information. It will take appropriate action after the bank and an independent panel complete investigations, the agency said in a faxed statement today.

Photographer: Tomohiro Ohsumi/Bloomberg

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

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

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Photographer: Tomohiro Ohsumi/Bloomberg

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

Auto Loans

The regulator ordered Mizuho to improve compliance on Sept. 27, saying the Tokyo-based lender 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.

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.

The revelation that Nishibori was aware of the transactions is at odds with earlier statements by the bank. 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.

Nakagome 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 today’s 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.

Shares of Mizuho closed 0.5 percent higher at 206 yen before the briefing. They have gained 31 percent this year, compared with the benchmark Topix Index (TPX)’s 34 percent advance.

Japanese authorities have stepped up efforts to combat yakuza gangs, whose activities range from extortion to drug trafficking, according to the National Police Agency. The groups are increasingly turning to businesses such as construction, finance, waste disposal and securities markets to supplement their income sources, police have said.

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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