January 23, 2014 / 8:10 AM / 4 years ago

UPDATE 2-Mizuho replaces core unit CEO after mob loan scandal

* Mizuho names VP Nobuhide Hayashi new head of core lending unit

* Yasuhiro Sato steps down as unit head, remains head of parent firm

* Latest management shake-up in wake of organized crime loan scandal (Updates with executive comments, adds context)

By Taiga Uranaka

TOKYO, Jan 23 (Reuters) - Mizuho Financial Group Inc said it would replace the chief executive of its core banking unit, the latest management shake-up in Japan’s second-largest lender as it tries to repair a reputation tarnished by loans to organised crime.

While its rivals Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group aggressively expand overseas, Mizuho is struggling with what executives called problems with corporate governance and culture.

The lender has since last year been embroiled in a scandal over loans that were extended to organised crime networks through a consumer finance affiliate, prompting penalties from Japan’s banking regulator including a one-month suspension for some Mizuho Bank operations.

“I have come to have a view that there are still many problems in corporate governance and culture,” Yasuhiro Sato, the outgoing chief executive of Mizuho Bank told reporters on Thursday.

“Why is this happening only to Mizuho? There are some structural issues. We have not yet firmly established one Mizuho culture,” he added.

Created about a decade ago by a merger of three rival banks, Mizuho has been criticised by investors for having too many executives and staff who remain loyal to their former employers rather than the merged entity.

Financial industry sources say turf wars are common in the bank, and rival camps often avoid interacting with each other.

Sato said his decision to step down would allow him to focus on revamping the corporate culture. He will be replaced by Nobuhide Hayashi, a 56-year-old deputy president of Mizuho Financial Group, effective April 1, the bank said.

Sato will remain president of Mizuho Financial Group, the parent entity, which also owns a securities firm and a trust bank. Hayashi, who also oversees Mizuho’s international banking unit, spent several years in New York and Hong Kong.

“It is not easy to rebuild a brand,” Hayashi said.

CORPORATE CULTURE

Mizuho has previously said it would reshape the board by inviting more outsiders, who will have the biggest say in nominating executives and at compensation committees. The change will be put to shareholders at a meeting scheduled for June.

Japan’s banking regulator had said that Mizhuo had known since 2010 that, through partially-owned consumer lending company Orient Corp, the bank had extended more than $2 million in loans to people deemed affiliated with organized crime. The regulator also said Mizuho had failed to take action against those loans.

The bank had said Mizuho Financial Group Chairman Takashi Tsukamoto will quit in March to take responsibility for the scandal.

The loans scandal is the latest problem facing Mizuho. The bank was hit by two massive crashes at its computer system, the latest occurring in the immediate aftermath of the March 2011 earthquake and tsunami. (Reporting by Taiga Uranaka; Additional reporting by Shinichi Saoshiro and Nathan Layne; Editing by Chang-Ran Kim and Miral Fahmy)

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