(Updates with analyst comment in seventh paragraph.)
Dec. 27 (Bloomberg) -- Takashi Tsukamoto will step down as chairman of Mizuho Financial Group Inc. after regulators ordered a second round of penalties at Japan’s third-largest bank for making loans to criminal groups.
Tsukamoto, 63, will leave at the end of March, while President Yasuhiro Sato had his period of work without pay extended to one year from six months, Tokyo-based Mizuho said in a statement after receiving a second round of penalties from the Financial Services Agency yesterday. The watchdog ordered the parent company and its Mizuho Bank Ltd. lending unit to strengthen governance and submit improvement plans by Jan. 17.
The new measures add to the regulator’s September order directing Mizuho to strengthen compliance after it failed to stop 200 million yen ($1.9 million) in credit extended to members of anti-social groups through an affiliate. The FSA called on the country’s financial institutions to improve oversight and monitoring of customers linked to criminal groups in a renewed push to end the loans.
“We will take the two rounds of penalties seriously,” Sato, 61, said at a news briefing in Tokyo yesterday. “My responsibility is to achieve a governance structure that the global markets can trust.”
Mizuho will consider revamping its corporate structure and adding external directors, it said in a statement yesterday. The bank didn’t indicate how it will replace Tsukamoto.
The FSA yesterday also told Mizuho’s lending unit to suspend new transactions through its consumer credit affiliates for a month, it said in the statement. The additional measures result from Mizuho’s incorrect report on the loans during the previous probe, as well as a lack of awareness and governance regarding the issue, the regulator said.
“The extra penalties are likely to have a light impact on Mizuho’s management and earnings, given that only a limited area of operations was subject to the suspension order,” said Ken Takamiya, a Tokyo-based analyst at Nomura Securities Co. “Mizuho’s crime-loan scandal is expected to die down, so there seems to be no further bad news for the bank for now.”
Shares in the bank rose 1.4 percent to 219 yen at 1:47 p.m. in Tokyo, outpacing a 0.4 percent gain in the Topix index. Since the first punishments were announced Sept. 27, Mizuho has slipped 1.8 percent, while the benchmark rose 5.5 percent.
Japan has stepped up efforts to combat yakuza gangs, whose activities range from extortion to drug trafficking, according to the National Police Agency. Ordinances took effect in 2011 banning companies from doing business with the yakuza that would result in profit for the organizations.
The crime-loan issue isn’t having any notable impact on Mizuho’s lending and deposit operations, said Sato, who has driven measures designed to improve management at Mizuho since taking his post in June 2011. The business suspension probably won’t have a major effect on profit, he said.
“The FSA is sending a message that the whole financial industry should strengthen measures against transactions with anti-social groups, using Mizuho’s case as a trigger,” which is more important than the effect of the measures on Mizuho itself, Yoshinobu Yamada, a Tokyo-based analyst at Deutsche Bank AG, said by phone yesterday.
Mizuho has been penalized for lapses ranging from computer failures to trading errors since its creation in 2000 through the merger of Dai-Ichi Kangyo Bank Ltd., Fuji Bank Ltd. and Industrial Bank of Japan Ltd. In May 2011, the FSA told Mizuho to improve operations and fix its “corporate culture” following system malfunctions that delayed transactions after the earthquake and tsunami two months earlier.
The FSA in 2007 ordered Mitsubishi UFJ Financial Group Inc.’s lending unit to suspend some operations for a week after finding that a branch in Hyogo prefecture, western Japan, did business with a crime group for more than 30 years.
--Editors: Nathaniel Espino, Tomoko Yamazaki