UFJ Holdings Inc. told the Financial Services Agency on Monday it will carry out organizational changes, including an increase in outside directors, in response to business improvement orders issued by the FSA.
The organizational changes are designed to meet three of the four FSA orders, UFJ officials said.
Earlier this month, the FSA issued business improvement orders against UFJ, saying it moved important documents to secret rooms and lied that it had not done so; issued false reports on the amount of loans to small and midsize firms; revised its earnings forecast in a way that did not reflect the actual results, which were much worse; and failed to achieve profit targets by more than 30 percent for two consecutive years, despite the bank’s acceptance of public funds.
UFJ, the nation’s fourth-largest lender by assets, will seek to improve its corporate governance by sharply increasing the number of outside directors in the wake of its concealment of important documents from FSA inspectors.
UFJ has already replaced about 20 of the senior officials concerned. It will place one outside director in charge of compliance programs.
With regard to the padded amount of loans to small and midsize companies, UFJ will reinforce its screening system for extending loans.
As for differences between earnings projections and actual results, UFJ will set up a new section to take over the compilation of earnings reports from the planning division, which prepares management plans and negotiates with financial regulators.
With the last of the four orders related to UFJ’s failure to meet its profit targets by more than 30 percent in fiscal 2003 for the second year in a row, UFJ will soon present a profit-improvement plan to the FSA after examining the possible effects of its merger agreement with Mitsubishi Tokyo Financial Group Inc.
Under FSA rules, any bank that receives an injection of public funds into its capital base must state its earnings goals. If UFJ falls short of its profit goals by more than 30 percent for a third straight year, the government might consider putting it under virtual state control.
UFJ Holdings said in May that it had posted a net loss of 402.8 billion yen for the year through March 31, its third consecutive year in the red.
FSA Commissioner Hirofumi Gomi told reporters the agency will closely study UFJ’s business improvement plans to check whether it has “thoroughly” analyzed the causes of the group’s operational problems and included effective measures to prevent a recurrence.
He said the FSA will strictly check if major banks are properly managing loans to their large borrowers to enable the government to achieve its target of ending the nation’s bad-loan problem by next March.