JAPAN-U.S.: Daiwa Sells Off U.S. Assets to Satisfy U.S. Attorneys/REPEATING

By Farhan Haq Reprint | | Print |

NEW YORK, Jan 29 1996 (IPS) - Daiwa Bank, the world’s 19th largest bank in 1995, has agreed to sell all its U.S. holdings to comply with U.S. demands to cease all its banking activities in this country.

In a press statement here, Abernathy MacGregor and Scanlon — the bank’s U.S. public relations firm — announced that Daiwa will sell its U.S. assets to the Osaka-based Sumitomo Bank, which last year was ranked the world’s fourth-largest.

Daiwa has agreed to sell off its U.S. Commercial Banking Division, which has 15 branch offices in U.S. cities; the assets of its New York subsidiary, the Daiwa Bank Trust Company; and all its offices. Terms of the sale were not disclosed.

In selling its assets here, the Japanese conglomerate has narrowly met a deadline set by the Justice Department to terminate all activites in the United States by no later than Feb 2.

Last Nov 2, U.S. attorney Mary Jo White forced the bank to agree to the shutdown when her office indicted Daiwa for “egregious corporate conduct and crimes at the highest level of a major financial institution.” She said the bank could also face fines of up to 1.3 billion dollars.

The charges shook Japan’s financial world which was already reeling from the 400 billion dollars of bad debt held by Japanese banks after the crash of its real estate market.

The scandal — in which Daiwa stands accused of covering up more than 1.1 billion dollars in trading losses — has also become a sore point in relations between the United States and Japan.

Many Japanese experts contend that Daiwa did nothing wrong by trying to recover from the damage done by New York branch executive Toshihide Iguchi, who engaged in unauthorised trading of U.S. Treasury bonds.

Iguchi is now under arrest, accused of making some 30,000 such deals over the past 11 years. White says he could face up to 30 years in prison and one million dollars in fines.

In her indictment, White says that Daiwa’s then-president, Akira Fujita, ordered Iguchi to destroy all evidence of his losses when they first came to light within the bank. It then tried to spread its losses to other offices through a Cayman Islands branch, according to the indictment.

For U.S. regulators, the case illustrates the kind of collusion they claim occurs between Japan’s government and its main financial institutions. Several Japanese financial officials are believed to have communicated with top Daiwa officials before the scandal broke last fall.

But for many Japanese, the issue was one of trust. Before his own resignation last October, Fujita confessed he had placed his trust in Iguchi, a promising young trader whose New York branch was racking up impressive yearly gains.

“The United States and Japan have two different cultures,” said one Japanese analyst who asked not to be identified. “In Japan, banking is based on trust; everyone is connected closely to each other, like a family.”

As a result, he added, the U.S. prosecution of Daiwa has struck a chord in Japan. Daiwa officials, he argued, are seen as victims of the familial corporate culture, not as culprits.

But in the United States, even Daiwa’s public relations firm acknowledged the bank may have made real errors.

Tim Metz, a spokesman at Abernathy MacGregor and Scanlan, said prosecutors may have felt misled by Daiwa’s assurances that different people were responsible for the bank’s trading and regulatory functions. Iguchi, Metz noted, performed both.

That also may be the reason it took 11 years for authorities to catch up with Iguchi’s swelling losses in the U.S. Treasury market, the spokesman added.

“If the guy who’s counting whether you’re ahead or behind is the one who’s responsible for putting you behind, it would be easy for them not to know what was going on,” Metz argued.

Now, with the Sumitomo deal in hand, Takashi Kaiho, Daiwa’s new president, said the bank would concentrate on an orderly transition and on its main markets on the Pacific Rim.

“Daiwa Bank’s greatest strneght lies in serving its customers in Japan and Southeast Asia,” Kaiho said in a statement. “In the near-to-immediate term, we intend to concentrate on those markets.”

In addition to ending Daiwa’s turbulent U.S. operations, the deal will enhance the banking power of Sumitomo, which already operates 48 branches of the Sumitomo Bank of California. Some 30 billion dollars of the bank’s 1995 estimated assets of 566 billion dollars are in the United States.