Japan slaps stiff penalties on financial firms
Brokerage, bank ordered to suspend some activities
In this story:
TOKYO (CNN) -- Japan on Wednesday imposed stiff penalties on two top financial institutions implicated in a widening payoff scandal.
Nomura Securities, Japan's biggest brokerage firm, was ordered to suspend securities trading in its own account until the end of the year. Other shutdowns in key divisions could add up to a loss of $400 million, according to industry analysts.
Dai-Ichi Kangyo Bank (DKB) will not be allowed to issue loans, except for housing, for the same period, about five months.
"It's sending a very strong message to the rest of Japanese financial institutions that their way of doing business has to change," Jesper Koll of J.P. Morgan/Japan told CNN.
In addition:
- Both firms were barred from underwriting government bonds until the end of this year.
- Nomura's headquarters will be closed for a month and the company will be banned from all stock transactions for a week.
- Nomura will impose pay cuts of up to 30 percent on its board members and senior managing directors as punishment for failing to prevent payoffs.
- Starting next month, Dai-Ichi Kangyo will be forbidden to set up new branches or businesses anywhere in the world for a year.
The scandal
Nomura and DKB are accused of paying off a reputed corporate blackmailer -- Ryuichi Koike -- to keep him from revealing company trading losses and scandals or disrupting shareholders' meetings.
Koike has been charged with illegally accepting a payoff of more than $400,000 from Nomura in 1995.
In addition, more than a dozen people, including top executives from the two financial firms, have been charged with illegally channeling money to the Koike.
The crackdown
The government of Prime Minister Ryutaro Hashimoto is trying to wipe out the long-standing practice of corporate payoffs as it deregulates Japan's financial sector. The aim is give it a cleaner image to attract international investors.
"With the punishment, what you are seeing is that the reform process is not just speeding up, but it's actually getting serious," said Koll.
Wednesday's announcement of penalties against Nomura and DKB followed a raid by prosecutors at the head office of Yamaichi Securities, another major brokerage firm. Yamaichi is suspected of funneling about 79 million yen ($679,000) to Koike in 1995.
The Nihon Keizai, Japan's leading business newspaper, said Wednesday that the Koike family had connections to all of Japan's "Big Four" brokers -- Nomura, Yamaichi, Daiwa Securities Co. and Nikko Securities Co.
All maintained special accounts in the name of Yoshinori Koike, Ryuichi's younger brother, and an acquaintance, the paper reported.
Reaction and impact
Nomura President Junichi Ujiie told a news conference the punishment was severe but that the company would accept it.
"Through this inappropriate act we caused a loss of faith in the securities market and greatly inconvenienced our clients," Ujiie said. "For this we are sincerely sorry."
Ujiie said it was impossible to estimate how much the penalty would cost the company but that "we will surely lose business."
Financial analysts agree. They say raids, tough sentences and the unveiling of corrupt business practices will cause domestic firms to lose face and customers. That opens up Japan's financial market -- and the country as a whole -- to international competition.
But Japan is a long way from a clean-cut corporate culture. Payoffs and favors are so pervasive, the Finance Ministry has even had to reprimand some of its own.
Senior bank inspectors have apparently been courted by the very same banks they were investigating.
Correspondent Jackie Shymanski and Reuters contributed to this report.
Related sites:
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- Nomura Securities International, Inc.
- Dai-Ichi Kangyo Bank
- Yamaichi Securities Company Group
- Daiwa Institute of Research
- Nikko Group Home Page
- Nikkei Net- comprehensive Asian business news, daily reports and weekly news analyses direct from the creators of the Nikkei Stock Average, Nihon Keizai Shimbun, Inc.
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