Sumitomo Bank’s Chairman Resigns in Wake of Scandal
Ichiro Isoda, 77, one of Japan’s best-known bankers, announced on Sunday that he will resign as chairman of Sumitomo Bank to assume moral responsibility for a scandal involving loans that a Sumitomo branch manager illegally arranged for stock price manipulation.
Sotoo Tatsumi, 67, the bank’s president, also said he intends to resign, but Isoda said Tatsumi would stay on for the time being.
Simultaneous resignation of the chairman and the president, Isoda said, would cripple management of Sumitomo, Japan’s most profitable bank and one of the world’s three largest. The chairman’s post, which Isoda has held for seven years, will remain vacant, he added.
The Japanese media immediately interpreted Isoda’s resignation as a symbolic result of Japanese banks’ aggressive pursuit of profit. Since 1986, the banks have financed transactions that sent land and stock prices skyrocketing. Although stocks have lost nearly 50% of their value since the beginning of the year, land prices remain at record highs.
Isoda and Tatsumi held a rare Sunday news conference to make the resignation announcements two days after police arrested Akinori Yamashita, 45, a former branch manager, and searched Sumitomo’s main Tokyo office. Both apologized for the bank “troubling society.”
Yamashita, who quit nine days ago, was accused of persuading three bank depositors to loan 11.38 billion yen ($86.2 million) of their own money to Mitsuhiro Kotani, 53, a businessman charged in August with manipulating stock prices. The former branch manager also was accused of inducing a fourth Sumitomo customer to loan 11.5 billion yen ($87.1 million) to the president of yet another stock speculators’ group.
Yamashita was suspected of receiving payments and inside information on stocks in return for arranging the illegal loans. Japanese law prohibits a bank officer from using his position to engage in private financial transactions.
Although Isoda and Tatsumi mentioned only Yamashita’s arrest in explaining their intention to resign, Sumitomo reportedly has served as the principal financier of Kotani’s company, Koshin, which is known as a firm that specializes in stock speculation.
“That such a crime occurred, even if it was committed by an individual, is, indeed, grave. In light of the bank’s public role, for the person at the top to resign is natural,” Isoda said.
Asked about loans from the bank itself to the speculators’ group, Tatsumi acknowledged that “there may have been some financing to Kotani. But that has no relationship to the chairman’s resignation.”
Sumitomo also is the main bank of Itoman, a trading company reported to be burdened with heavy debts accumulated through speculation in land transactions. The Finance Ministry recently began investigating Sumitomo’s loans to Itoman.
Asked whether he will also resign as a vice chairman of the influential Keidanren (Federation of Economic Organizations), Isoda said, “Please, let’s not discuss that today.”
The Sumitomo branch manager’s role in financing stock speculation is the latest in a series of stock scandals that have plagued Japan since revelations in 1988 of the Recruit Co. scandal that ultimately brought down the government of former Prime Minister Noboru Takeshita.
In a monolithic industry where innovation has been thwarted by strict regulations by Japan’s Finance Ministry, Isoda--who was president between 1977 and 1983 before taking over as chairman--stood out for his willingness to take risks to expand profit.
Aggressive real estate development and loans have been cited as the driving force behind Sumitomo’s becoming the world’s most profitable bank again. In its latest operating year, which ended March 31, Sumitomo again ranked No. 1, with pretax profits of $2.7 billion. The bank’s financial statement showed 12% of its outstanding loans in real estate.
With assets of $470 billion in March, 1990, Sumitomo was the world’s second-largest bank after Dai-Ichi Kangyo, with $497 billion in assets. But in the aftermath of a merger that created Mitsui Taiyo Kobe Bank, for which asset figures are unavailable, its ranking may have fallen to No. 3.
Isoda also was credited with bringing Ford Motor Co. in as a stockholder of Mazda Motors, a move that helped the Hiroshima-based auto maker pull out of a financial crisis in the wake of the 1973-74 oil shock. Other business “rescues” in which Isoda played a major role involved Asahi Breweries, Daishowa Paper Manufacturing Co. and Ataka & Co., which was merged into C. Itoh & Co., a large trading company.
Like other Japanese banks, Sumitomo has been stung by recent concerns over whether its capital position--the financial cushion that protects against losses--is adequate in the wake of the Tokyo stock market’s steep drop.
Sumitomo made a high-profile move into the United States with its 1986 investment of $500 million into the Wall Street firm of Goldman, Sachs & Co. In return, it received a 12.5% non-voting stake in the U.S. firm.
Sumitomo owns about 72% of Sumitomo Bank of California, the state’s ninth-largest bank at the end of last year.
The California bank had $4.4 billion in assets and 46 branches in 1989, most of them in San Francisco or Los Angeles. It is the state’s fourth-largest Japanese-controlled bank, behind Mitsubishi’s Bank of California, Bank of Tokyo’s Union Bank and Sanwa California.
Times Staff Writer James Bates in Los Angeles contributed to this story.
