Mizuho’s Sato Under Pressure as FSA Scrutinizes Crime Loans

Pressure on Mizuho Financial Group Inc. President Yasuhiro Sato mounted after Japan’s financial regulator told the bank to explain how and when top executives found out about its loans to crime groups.

The Financial Services Agency issued the order yesterday after Mizuho said it erred in reporting only lower-ranking officials knew of the loans, an FSA official told reporters in Tokyo, asking not to be named in accordance with its policy.

The order, the first against the parent company about the matter, comes less than two weeks after the FSA told Mizuho’s banking unit to improve compliance for allowing members of crime groups to borrow money through a consumer credit affiliate. Sato said this week that he was unaware of the lending until the regulator’s investigation in March.

“The situation is clearly getting more negative,” said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. “The worst-case scenario that President Sato has to resign may come in sight.”

Satoru Nishibori, president of Mizuho’s banking unit at the time, knew of the loans in 2010, Sato said on Oct. 8, amending earlier statements by the bank that four senior compliance officials were aware and didn’t inform superiors.

Sato, 61, said he himself was in a position where he could have found out about the loans in executive meetings as early as July 2011, when reports mentioning the transactions were distributed.

‘Completely Different’

“This is completely different from what they first reported,” Chief Cabinet Secretary Yoshihide Suga said at a news briefing in Tokyo today. “They bear great responsibility as an organization and I believe the people of Japan will feel the same.”

Since becoming president of Japan’s third-biggest bank by market value in June 2011, Sato has overseen the merger of the its corporate and retail lending units to better integrate the company under its “One Mizuho” brand. The lender was formed from the combination of three banks more than a decade ago.

Masako Shiono, a spokeswoman for Mizuho in Tokyo, said the holding company and banking unit both received the latest orders. They must report back to the FSA by Oct. 28.

The FSA said earlier this week that it will take appropriate action after the bank and an independent panel complete investigations.

Shares of Mizuho were unchanged at 204 yen at the lunch break in Tokyo. The stock has dropped 8.1 percent since Sept. 27, when the regulator revealed the loan issue. The Topix Index lost 3.4 percent in the same period.

Break Ties

Mizuho Bank Ltd. made 230 loans, mostly for automobiles, valued at about 200 million yen ($2 million), through its Orient Corp. consumer credit affiliate, the FSA said that day. The bank failed to take enough steps to break off the transactions with “antisocial forces,” the regulator said.

Standard & Poor’s said 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 yesterday before the additional order was issued.

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 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.

Before it's here, it's on the Bloomberg Terminal.