Mizuho’s grave governance problem

A third-party panel of lawyers has effectively labeled Mizuho Bank’s inaction on its loans to organized crime as a failure of governance — a grave problem that haunts the megabank more than a decade after its creation through the merger of three financial institutions.

While the Oct. 28 report compiled by the bank-appointed panel denied that Mizuho was engaged in an organized coverup or in collusion with yakuza groups, it pointed to the lack of communication among the bank’s top management and their lax awareness of the seriousness of the mob-loan issue.

Mizuho’s lesson from the latest scandal should be to establish a governance system befitting its size as one of Japan’s top banks.

The bank has acknowledged that it learned in December 2010 of a total of 230 loans worth about ¥200 million to the underworld extended through its consumer credit subsidiary Orient Corp., but that it took no proper action on the matter until the loans were exposed in an inspection by the Financial Services Agency this year.

The third-panel report said that Mizuho executives did not fully recognize the loans as the bank’s own because applications had been made through the subsidiary. Bank staff lacked awareness of the need to organize to sever ties with “anti-social elements,” it said.

When then Mizuho President Satoru Nishibori — who had been informed of the mob loans — resigned in 2011 to take responsibility for a system breakdown after the 3/11 disasters, the loan issue was not properly carried over “as an organization” to his successor, Mr. Takashi Tsukamoto, due to the confusion over system problems and the subsequent management shakeup, according to the report. Still, the fact remains that Mizuho’s management left the issue unattended for far too long after the confusion ended.

Mizuho Financial Group was created in 2002 through the merger of Dai-Ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan. In 1997, Dai-Ichi Kangyo Bank had come under fire for extending ¥11.7 billion in profits to a sokaiya corporate racketeer.

Even after the 2002 merger, the Mizuho group continued to be hit by serious troubles. On the very day the new bank was launched (April 1, 2002), depositors were unable to withdraw money from ATMs due to a system failure. In March 2011, Mizuho ATMs were shut down due to a system overload, delaying the processing of more than 1 million money transfer orders. Each time a problem emerged, it was pointed out that lingering rivalry among the people from the three former banks had prevented Mizuho from establishing a proper governance system.

The third-party panel charged that a communications breakdown permeated the Mizuho organization, and that the mob-loan issue was treated as if it were an exclusive matter of the legal compliance team and not to be touched by the rest of the bank. The bank plans to create a new committee for eliminating transactions with the underworld, but the key is how the committee will share information and work with the bank’s board of directors and other internal organizations.