By Taiga Uranaka and Taro Fuse
TOKYO Oct 25 The head of Mizuho Financial Group
looks set to survive the revelation of bank loans to
mobsters, a move that could revive his recently flagging efforts
to improve corporate governance at Japan's second-largest bank
Mizuho will not sack Yasuhiro Sato as president and CEO, but
may suspend his pay for some period, people familiar with the
matter said on Friday. The bank is expected to announce its
response to the scandal on Monday.
The uproar over the mob loans has sidetracked Sato over the
past month from his quest to unify the fractious financial
group, which lags Japan's other two "megabanks" in key measures
of financial performance. It comes as Mizuho is trying to expand
its loan business globally and establish itself as "Asia's core
But the mob loans reflect badly on Mizuho's past governance
more than on Sato's reform drive, said banking analyst Toyoki
Sameshima at BNP Paribas Securities.
"The matter gives all the more reason for Sato to push
forward with fixing the bank's problems," Sameshima said. "I
don't think it will be a significant setback to Sato's efforts
to change the bank or his leadership."
In the latest scandal involving a major Japanese company
having ties with the underworld, regulators disclosed in late
September that Mizuho had funnelled some $2 million through an
affiliated financing firm to organised crimes figures in 230
small transactions, mostly car loans.
Mizuho initially said that knowledge of the loans went only
as far as the bank's compliance officers, but later the bank
acknowledged that the transactions had been reported to top
officials, including Sato, at board meetings.
The Financial Services Agency late last month ordered Mizuho
to improve its business practices after it failed to stop the
mob lending more than two years after finding out about the
loans. Working with an outside panel of lawyers, Mizuho aims to
submit a report to the regulator on Monday.
The scandal, in addition to highlighting the pervasive reach
of "yakuza" crime syndicates and other underworld elements
throughout Japan Inc, also epitomizes the lapses in corporate
governance that Sato himself has been struggling to fix.
"Sato was getting a tighter grip on the bank and his
leadership was getting traction," said a former Mizuho
executive. But the scandal "has pretty much undone it."
Mizuho is particularly vulnerable to bad governance and
compliance because 13 years after its formation, in a three-way
merger of failing banks during Japan's financial crisis, it
remains three banks in one.
Sato has been viewed very favourably by investors as "a
symbol of One Mizuho", the bank's unification effort, said
banking analyst Yoshinobu Yamada at Deutsche Securities.
The 61-year-old banker has been trying to unify a financial
giant that still maintains separate cultures and loyalties from
its long-defunct constituent lenders: the Industrial Bank of
Japan, Dai-Ichi Kangyo Bank and Fuji Bank. The tussling fiefdoms
have fostered a culture of protecting turf and refraining from
taking broad responsibility for problems, Mizuho bankers admit.
Japanese mergers often leave legacy factions, but Mizuho is
an extreme case because none of the three banks clearly
dominated. Top Mizuho jobs have rotated among the three
factions, with none stamping its imprint on the broader
That has contributed to the bank's inability to generate
profits and shareholder value commensurate with its enormous
Mizuho's assets are 25 percent smaller than those of Japan's
biggest bank, Mitsubishi UFJ Financial Group, but
Mizuho's market value is a full 44 percent lower and its net
profits for the latest quarter were 34 percent lower than
MUFG's. Even more starkly, Mizuho is 16 percent bigger by assets
than Sumitomo Mitsui Financial Group but its market
capitalization and profits are nearly 30 percent lower.
Sato, an urbane banker with a wealth of international
contacts, is a product of IBJ, originally a government-backed
bank that helped finance Japan's rise as an industrial power.
IBJ bankers have famously considered themselves an economic and
social elite, especially compared with their Dai-Ichi Kangyo and
Fuji colleagues, who contributed a massive retail presence to
Fighting to break the silo mentality, Sato at one point
rejected a proposed line-up of senior management that favoured
ex-IBJ executives, said a Mizuho official familiar with the
Sato also led July's consolidation of Mizuho's corporate and
retail lending units, also meant to unify the Mizuho brand and
After a ritual deep bow of contrition at a news conference
earlier this month, Sato said he had been "in a position to
know" about the mob loans, but had not noticed them.
He said that at eight meetings of the Mizuho holding company
and retail bank in 2011 and 2012, the loans were mentioned in
attachment documents about "the resolution of transactions with
anti-social forces" - a euphemism for the yakuza - at
Mizuho-affiliated consumer-finance firm Orient Corp.
"We have no alternative but to say that the Mizuho group
overall was lacking in awareness of the issues," Sato said. "I
deeply regret this."
A former Mizuho director said meeting documents would
regularly have a line on the bank's handling of anti-social
forces, which were treated as little more than a statistical
Sato is expected to keep his post in part because the FSA
initially backed him to take the helm at Mizuho and they see no
"He's eloquent. He's full of ideas," said a source at the
regulator. "The FSA pushed for Mr. Sato."
A Mizuho spokesman said the bank had made no decision on how
it would deal with the scandal. The bank in recent weeks has
declined to make Sato or other top executives available for
Mizuho's stock has fallen 8.5 percent since the lending
scandal emerged, versus declines of just under 6 percent for
MUFG and SMFG and 5 percent for the broader Tokyo market.
"Although Mizuho is underperforming its rival megabanks,
market consensus is that there won't be a further surprise to
hit the bank if Sato is not sacked," said Fumio Matsumoto, a
fund manager at T&D Asset Management, who had continued to hold
Mizuho shares in his portfolio since the incident.
"What the stock market had feared was the possibility that
Sato would resign."
Sato will likely have his pay suspended for six months while
more than 30 senior executives will also be punished, Japanese
media reported on Friday.
Takashi Tsukamoto is likely to step down as chairman of
Mizuho Bank, the firm's core banking unit, while remaining
chairman of the holding company, sources told Reuters.