Report due on Japan's Mizuho mob-loan scandal, serious penalty unlikely

Sun Oct 27, 2013 5:04pm EDT
 
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By Taiga Uranaka

TOKYO (Reuters) - Mizuho Financial Group (8411.T: Quote) will try to put a loans-to-mobsters scandal behind it on Monday, but while Japan's second-biggest bank by assets may escape serious penalty it faces an uphill battle in catching up with its expanding peers.

A panel of lawyers, appointed by Mizuho, will report its findings on how the bank failed for more than two years to end the loans to "yakuza" gangsters after discovering the shady transactions.

Mizuho is then expected to announce its response to the scandal, which hit the bank just as it was seeking to improve its corporate governance and accelerate growth, especially in overseas markets.

Yasuhiro Sato will likely keep his job as president and CEO of the financial group and its core Mizuho Bank unit, people familiar with the matter told Reuters last week, allowing Sato to resume his drive to unify the fractious bank, bring its compliance under tighter control and establish the lender as "Asia's core bank". <ID: nL3N0IF04V>

Mizuho will likely suspend Sato's pay for some period, while Takashi Tsukamoto is expected to step down as Mizuho Bank chairman, the sources said.

In the latest scandal involving a major Japanese company's ties to the underworld, regulators disclosed in late September that Mizuho had learned in late 2010 of $2 million in loans to organized crime figures. The 230 small transactions, mostly car loans, were made by Mizuho consumer-finance affiliate Orient Corp (8585.T: Quote) and were among bulk loans the bank later bought from Orient.

The Financial Services Agency (FSA) ordered Mizuho to improve business practices after the bank did almost nothing about the mob lending for more than two years. Mizuho initially said that knowledge of the loans went only as far as the bank's compliance officers, but days later the bank acknowledged that the transactions had been reported to top officials, including Sato, at board meetings.

Monday's report by the outside panel is expected to show that the bank was sloppy in its handling of the scandal but that it did not intentionally mislead the authorities, sources said.   Continued...

 
A woman walks past a branch of Mizuho bank, belonging to Mizuho Financial Group, in Tokyo July 31, 2013. REUTERS/Issei Kato