The Finance Ministry slapped administrative penalties July 30 on Nomura Securities Co. and Dai-Ichi Kangyo Bank lasting from five months to a year for their roles in one of the biggest financial scandals to hit the nation this decade.
They are the harshest sanctions ever meted out by Japanese financial regulators. The punishment, personally handed to the presidents of the two firms in the afternoon for the financial favors they showered on a “sokaiya” corporate racketeer, include the suspension of Nomura’s equity-related proprietary transactions — dealings under its own account as opposed to brokering for clients — and a ban on credit extension to new customers by Dai-Ichi Kangyo Bank from Aug. 6 to Dec. 31.
It is the first time the ministry has ordered a relatively healthy bank to suspend a portion of its operations, and the harshest punishment ever given to a brokerage. Both institutions were told to draw up a plan of specific steps to correct internal operations to be submitted to the ministry by Sept. 19, and Dai-Ichi Kangyo is required to report every six months on progress being made.
Finance Minister Hiroshi Mitsuzuka told a news conference that the scandal was “truly regrettable,” and that it severely hurt the trust and reliance depositors and investors placed in the system. He added, however, that the fiasco would not adversely affect the government’s desire to implement wide-ranging financial system deregulation over the next few years.
“The reforms are going forward step by step, and the actions of individual firms have no effect on this process,” Mitsuzuka said. The Finance Ministry said the credit suspension order will apply to all of Dai-Ichi Kangyo’s domestic branches and prevent it from gaining new customers, with the exception of those applying for consumer loans, deposit-collateralized loans, and those who apply before the order takes effect.
The ministry, under Article 27 of the Banking Law, had the right to suspend other operations at the bank, such as extension of additional loans to those already doing business with the bank, and deposit and withdrawal transactions. Authorities chose not to take such steps out of fear that too many companies and individual depositors would be adversely affected.
For Nomura, apart from the suspension of stock-related propriety transactions, every type of stock-related transaction in every Nomura office is to be banned for seven days starting Aug. 6. In addition, the brokerage is to suspend brokerage transactions in securities and securities futures through the First Corporate Division of its main office from Aug. 6 to Dec. 5.
As in the case of Dai-Ichi Kangyo, Nomura was banned from underwriting and bidding for Japanese public bonds. The length of the punishment was the longest ever handed down to a brokerage for loss compensation, largely because it was Nomura’s second major violation of the Securities and Exchange Law, and because the brokerage, as in the case of Dai-Ichi Kangyo, also breached the Commercial Code.