Involvement with yakuza groups threatens Mizuho brand

Financial Services Agency (FSA) warned the bank, in September, not to lend money to yakuza groups. However, it not only failed to stop extending loans but also admitted that the former president was aware of the issue. Orders came through yesterday for the bank to submit further reports on its underworld loans.

Japan passed a law three years ago prohibiting commercial transactions for “antisocial forces”, a term commonly used to refer to mobsters.

Mizuho, Japan’s third-largest bank, has processed around ¥200 million (US$2 million) worth of transactions for such organisations, according to the FSA.

Yesterday, Yasuhiro Sato, the president of Mizuho Financial Group, the parent of Mizuho Bank, finally admitted that the bank's senior management knew of the loans as early as 2010.

Ross Rowbury, president of Edelman Japan, said it appeared the bank had tried to cover up the issue. A source who wished to remain anonymous told Campaign Asia-Pacific that the severity of the impact on the brand depends on how the bank responds to it, as well as how much responsibility the corporation takes as a whole, or the individuals who were involved.

“If there is adequate ‘punishment’ to the individuals, it is more likely that the public will forgive them [the brand] in the short to medium term,” the source said. “From what I see, the corporation is really taking the incident seriously and the individuals involved show sincerity [in putting] things right. The courage to admit responsibility is always crucial.”

Mizuho Bank is likely to take punitive measures against Sato and chairman Takashi Tsukamoto for their mishandling of the scandal. The lender is considering to temporarily cut Sato and Tsukamoto’s salaries.

Another source pointed out that there is a common issue around the world of banks not knowing their customers. However, the source said matters were somewhat different in Japan, where organised crime groups are able to operate semi-legitimately.

“If the issue is a one-off and isolated from other firms, the bank might be able to minimise the damage as long as it provides context about why this happened, keeps being transparent about all the dealing with that entity, and shows changing culture to prevent it happening again,” the source said.

Rowbury also put forth that such an incident would not only damage the brand but would likely bring internal challenges around the accountability of organistional structures. One of the sources agreed that the most important thing for a well-established corporation is to build systems that make sure similar misbehaviour will not happen again.

“Reputation and trust is the most important asset of a financial institution and people are very sensitive to this as it doesn't just involve how they do business, but people entrust their money with it, so they will be very cautious about who they are dealing with,” a source said.

“Today’s banks are learning to deal with risking their reputations, transparency and full explosion where is possible,” said another source. “They need to improve internal communication and compliance, know their clients’ information and make sure no customer will be jeopardised.”