Tokyo Notes

Fresh Banking Goes Bad

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Tokyo Notes

Fresh Banking Goes Bad

The arrest of former Incubator Bank of Japan Chairman Takeshi Kimura abounds with irony.

The troubled Incubator Bank of Japan announced Wednesday it would shut down 20 of its 125 branches as it tries to get back on its feet after a scandal that is the stuff of novels.

The story involves the fall of another of the young, brash, know-it-alls who emerged during the administration of Prime Minister Junichiro Koizumi (2001-2006). Like Takafumi Horie and Yoshiaki Murakami, Takeshi Kimura talked of shaking things up and doing them differently from established ways; in his case the industry was banking.

Sectors favouring those old established ways gloated when Horie and Murakami ended up with prison sentences after their uncontrolled zeal turned into transgression–window dressing in the case of Horie and insider trading in the case of Murakami. Now it’s Kimura’s turn to be arrested, shattering what was left of his image of financial acumen.
 

Kimura, who worked for 13 years at the Bank of Japan and later advised Koizumi’s state minister for financial services, Heizo Takenaka, on how Japan should sort out its bad loans problem, stood down from his position as chairman of the Incubator Bank in May, following the announcement of losses of 5.1 billion yen. He was arrested last week along with five other executives from the bank over the obstruction of an investigation into the bank’s financial dealings.

Kimura supposedly demanded that his colleagues help him delete 280 e-mails and keep quiet. Did they willingly conspire with him or was it a nightmare scenario in which the bad boss dragged them into trouble? Of the five, only Kimura has denied the allegations.

One of several ironies in this tale is that Kimura helped establish some of the practices of the very investigating body, the Financial Services Agency, that was trying to look into the bank’s dealings.

One media report said when Kimura initially refused to cooperate with FSA staff he insisted that he knew their audit manual better than they did since he had written it.

So what was Kimura trying to cover up? It looks like he was trying to hide the fact that the bank was not conducting business in the groundbreaking way it was supposed to when he helped set it up in 2004. Even now, the bank’s official Website boasts of its innovative banking strategy in which a small but highly specialized staff efficiently provide small and medium size businesses with the loans they need to help restore Japan’s vitality. It also talks of expanding the 'middle risk, middle return market' and even setting new standards for corporate governance.

But with the bank encountering financial difficulties, Kimura is alleged to have resorted to less than palatable survival strategies such as charging the failing moneylender SFCG exorbitant interest rates of up to 46 percent–far in excess of what could be considered middle return.

The conservative Yomiuri Shimbun, Japan’s biggest daily, devoted a recent editorial to the downfall of Kimura, and couldn't resist gloating on the parallels with others who had an 'excessive worship of money' but who ultimately betrayed themselves—namely Horie and Murakami. Again on Wednesday, in one of the paper’s most famous columns, it asked how the bank’s new president, Go Egami, would use down-to-earth advice from his father to sort out the mess at the Incubator Bank.

The final twist in the story is that Egami, who was an external board member of the bank before taking over following the arrests, is also a prolific writer. His latest book might have come in useful to some of those bank officials who were allegedly ordered to delete mails by Kimura. It’s a businessman’s crisis management guide to dealing with a problematic boss.