Mizuho Financial Group Inc. cut pay for President Yasuhiro Sato and said the chairman of its lending unit will step down after Japan’s third-biggest bank by market value failed to address loans made to crime groups.
Takashi Tsukamoto 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 today. He and Sato will forgo pay for six months and 52 other current and former executives will be penalized.
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 he received the bank’s business improvement report today. The government will examine the contents and decide any punishment taking into account the findings of the panel of lawyers, he said.
Shares of Mizuho closed 2.5 percent higher at 209 yen before Sato spoke, paring their decline since the regulator ordered the bank to improve compliance a month ago. The lender failed to act on 200 million yen ($2 million) in about 230 transactions with members of crime groups through its Orient Corp. affiliate, the agency said on Sept. 27.
There may have been about 460 transactions initially, Sato said today. He declined to give 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.
The banking 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, led by former High Court Chief Justice Hideki Nakagome, said earlier today 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 hand over the crime-loan issue to his successor, Tsukamoto, 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.