Japan's Mizuho likely to escape serious penalty over mob loans

Sun Oct 27, 2013 10:32pm EDT
 
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By Taiga Uranaka

TOKYO (Reuters) - Mizuho Financial Group (8411.T: Quote) looks likely to escape serious penalty in a loans-to-mobsters scandal after an outside panel said on Monday that Japan's second-biggest bank by assets did not intentionally try to hide the shady lending from investigators.

But while Mizuho's president and CEO, Yasuhiro Sato, is now expected to keep his job and resume his efforts to unify the fractious "megabank" and improve its governance, Mizuho faces an uphill battle in catching up with its expanding peers.

The external panel of lawyers said in a report that Mizuho's management failed to appreciate the gravity of collaborating with organized crime, but said the bank's initial false report to regulators was a mistake and not an intentional cover-up.

"It is highly regrettable that a bank that represents Japan was involved in such a problem and we cannot ignore the fact that such incidents were allowed to be carried on within the organization," the panel said.

The scandal, involving $2 million worth of loans funneled to "yakuza" gangsters, hit the bank just as it was seeking to improve its corporate governance and accelerate growth, especially in overseas markets.

Sato will likely remain president and CEO of the financial group and its core Mizuho Bank unit, people familiar with the matter told Reuters last week, allowing him to resume his reform drive and seek to bring its compliance under tighter control and establish the lender as "Asia's core bank".

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 the mob loans. 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.   Continued...

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