Mizuho Financial Group Inc. (8411)’s President Yasuhiro Sato will give up six months of pay for failing to stop loans made to criminal groups as Japan’s third-biggest bank awaits further penalties from regulators.
Takashi Tsukamoto will also forgo six months’ compensation and will give up his role as chairman of Mizuho Bank Ltd. while keeping the post at the parent company, the Tokyo-based bank said in a statement yesterday. A total of 52 other current and former executives will also be penalized, the lender said.
Sato bowed in apology at a news briefing in Tokyo, hours after submitting a report to the Financial Services Agency outlining measures such as database sharing and the addition of an outside director to prevent further transactions with yakuza crime syndicates. Lawyers commissioned by Mizuho to investigate the loans earlier said the bank’s shortcomings stemmed from lax internal controls rather than attempts to mislead regulators.
“Mizuho’s internal punishment won’t be negative for the share price as Sato remains president,” said Takehito Yamanaka, an analyst at Credit Suisse Group AG in Tokyo. “We still need to pay careful attention to whether the FSA will hand down any additional severe punishment.”
Sato, 61, who has driven measures designed to improve management at Mizuho since taking the post in June 2011, said he didn’t consider stepping down even while acknowledging the incident dented his authority.
“Mizuho’s top management including myself deeply regret this issue,” he said. “My leadership was severely hurt, but I don’t think it’s impossible to recover.”
Financial Services Minister Taro Aso said today that his agency will review the lawyers’ report and “improve what’s needed to be improved.” When asked yesterday to comment on incorrect reporting by Mizuho about the extent of top managers’ knowledge of the loans, he said “that’s the last thing a bank should do.”
Shares of Mizuho fell 1 percent to 207 yen at 9:40 a.m. in Tokyo. The benchmark Topix Index (TPX) slid 0.6 percent.
The lender failed to act on 200 million yen ($2 million) in about 230 transactions with members of crime groups through its Orient Corp. (8585) affiliate, the agency said on Sept. 27. There may have been about 460 transactions initially, Sato said yesterday, without giving a yen amount.
Mizuho will share its database of crime groups with Orient and help the consumer credit company improve its system for verifying customers applying for loans, the lender said in the statement. Hiring an external board member and establishing a committee to avoid transactions with antisocial groups are also part of the business improvement plan, it said.
Sato’s pay cut applies to both his roles as president of the parent company and the banking arm. He received a combined 80 million yen base salary last fiscal year, according to company filings made in June. His total annual compensation including stock options was 116 million yen.
The lending unit will appoint Tatsuo Kainaka, a 73-year-old former Supreme Court judge, as its first outside board member, Sato said. Currently the parent company has three external board members while Mizuho Bank has none.
The three-member committee of lawyers, led by former High Court Chief Justice Hideki Nakagome, said yesterday that Mizuho didn’t have clear disclosure rules on issues relating to criminal organizations. Communication between compliance divisions and other sections of the company was lax, it added.
There was no evidence that issues relating to the loans were discussed at compliance and board member meetings attended by Sato and Tsukamoto, 63, according to the report.
Sato said he can’t remember seeing any reference to crime loans through Orient in reports distributed at executive meetings. Earlier this month, he said he was in a position to have found out about the transactions from the reports yet wasn’t aware of them until the FSA told him in March.
The three lawyers interviewed 81 current and former Mizuho officials and four Orient employees and reviewed e-mails of 12 individuals. It didn’t check e-mails of Sato, Tsukamoto or former banking unit chief Satoru Nishibori, Nakagome said.
The committee said that during the FSA’s investigation, a Mizuho official wrongly told the agency that crime loans weren’t reported to executives at compliance and board meetings. That led to the bank’s incorrect report to the regulator that only lower-level compliance officials were aware of the loans.
The panel also highlighted a lack of communication when top executives changed, saying Nishibori didn’t properly brief his successor, Tsukamoto, on the crime loans when he stepped down in June 2011 following a computer glitch. No one explained the issue to Sato either, according to the report.
Nishibori will remain an adviser to the bank, while returning part of three months’ salary, Mizuho said.
Mizuho has been penalized for lapses ranging from computer failures to trading errors since its creation in 2000 through the merger of Dai-Ichi Kangyo Bank Ltd., Fuji Bank Ltd. and Industrial Bank of Japan Ltd. In May 2011, the FSA ordered Mizuho to improve operations and repair its “corporate culture” following system malfunctions that delayed transactions after the March 2011 earthquake and tsunami.
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