Mizuho's Yasuhiro Sato exits Japan government panel amid scandal

Yasuhiro Sato, president of Mizuho Financial Group and one of Japan's most powerful bankers, has stepped down from a government panel amid a deepening scandal over lending to criminal groups.

Last month Japan's Financial Services Agency ordered Mizuho to improve its business practices, saying the bank had known since 2010 that it had extended more than Y200m in loans to "antisocial forces" - a euphemism for organised crime - via Orient Corp, a consumer credit affiliate.

Addressing a press conference on Tuesday, Mr Sato said that he was "in a position" to know about the problem as early as July 2011, citing materials handed out - but not discussed - during a board meeting he attended.

Mizuho also said that another senior figure, former retail unit president Satoru Nishibori, had been briefed on the loans by the compliance department - apparently contradicting the bank's claims a week ago, when it said that top management was unaware of wrongdoing.

The scandal is the most serious to affect the Japanese banking system since 2007, when Bank of Tokyo-Mitsubishi was sanctioned for doing business with criminal groups. Dealings with such syndicates are prohibited under a 1991 law. Mizuho's handling of the matter showed serious problems with control and compliance systems, the FSA reported, ordering it to make a "clean break from antisocial forces".

Awareness of activities supporting criminal syndicates across Mizuho was "low", said Mr Sato on Tuesday, adding that the bank should have informed the regulator more promptly.

In order to focus on the clean-up, Mr Sato said he would stand down from the Industrial Competitiveness Council, a group of nine executives handpicked by prime minister Shinzo Abe to craft legislation to boost growth in the world's third-largest economy.

"I, myself, am not free of responsibility over this matter," Mr Sato said.

The watchdog has given Mizuho a month to submit a detailed plan to improve its operations, and said on Tuesday that it would take "appropriate action" after the bank and an independent panel complete their investigations. The panel is to be led by Hideki Nakagome, a retired judge who previously headed probes into accounting fraud at Olympus and information leaks by Nomura Holdings.

Mr Nishibori has been a part-time adviser to the Mizuho group since 2011. In June that year he stood down from running the retail bank to take responsibility for a customer backlash over a system shutdown in March, following a surge in earthquake-related donations.

The scandal has caused shares in Japan's second-biggest financial group by assets to lag behind the domestic banking sector by about 2 per cent since September 27, and raises questions about the wisdom of outsourcing customer-screening processes to Orient, a listed company 22 per cent owned by Mizuho, said analysts.

"The reaction among Mizuho's retail and corporate clients is still uncertain," said Takehito Yamanaka of Credit Suisse in Tokyo. "The damage to earnings depends on how the reputational issues spread out, after recent media coverage."

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