Daiwa Scandal Gets Wider With New Disclosures : Banking: U.S. unit lost a separate $97 million in unauthorized bond trades in ‘80s. Japanese officials defend delays in reporting.

The scandal over Daiwa Bank’s U.S. operations widened Monday as the bank revealed another set of losses totaling $97 million and the Finance Ministry admitted that it had heard of separate huge losses six weeks before U.S. authorities were informed.

The newly reported losses came from U.S. bond trading between 1984 and 1987 at Daiwa’s U.S. subsidiary, Daiwa Bank Trust Co., which shortly thereafter set up a now-defunct offshore subsidiary to hide the losses, bank and ministry officials said.

The loss at the U.S.-based trust bank is unrelated to a previously revealed loss of $1.1 billion at Daiwa’s New York branch, which also came from unauthorized U.S. bond deals.

Akira Fujita, who resigned Monday as Daiwa’s president, met Aug. 8 with Yoshimasa Nishimura, the Finance Ministry’s banking bureau chief, and told him about receiving a letter from a New York bond trader outlining the $1.1-billion loss, Finance Ministry spokesman Yukio Yoshimura said. U.S. authorities, however, were told nothing about the loss until Sept. 18.

Nishimura said he found the letter hard to believe and thought the bond trader might be “suffering a nervous breakdown,” so he wanted the Finance Ministry to verify the claims before notifying U.S. authorities.

Toshihide Iguchi, 44, the trader who allegedly wrote the letter to Fujita confessing to years of making unauthorized bond trades and concealing them, was arrested by U.S. authorities on Sept. 26 and charged with fraud.

Speaking at a Monday evening news conference in Tokyo, Finance Vice Minister Kyosuke Shinozawa said that after hearing of Iguchi’s letter, Nishimura “told Fujita to investigate and find out what was going on” and that the finance official was correct “to hold off on telling the U.S. authorities until the results of the investigation were known.”

“It is Daiwa Bank [rather than the ministry] that has the obligation to report the incident to the U.S. authorities,” Shinozawa said.

Speaking Monday at a news conference at the bank’s headquarters in Osaka, Fujita said Daiwa delayed reporting the loss to U.S. authorities because “we placed priority on elucidating the whole truth of the incident by ourselves.” The Finance Ministry had not given the bank any advice suggesting an immediate report to the U.S. Federal Reserve, Fujita added.

Outgoing Daiwa Chairman Sumio Abekawa, who on Monday announced that he was resigning effective no later than March, said the bank delayed its report to U.S. authorities until Sept. 18 because “we wanted to avoid inflicting damage to [international confidence] in the Japanese financial system, which was facing a series of collapses with Cosmo Credit Corp. in July and Hyogo Bank and the Kizu Credit Union in August.”

Nishimura, speaking at a separate news conference, also defended his decision not to take quicker action.

“At that time, President Fujita himself told me he cannot believe in the contents of the letter, and I did not perceive the letter as information credible enough to oblige the ministry to take action,” Nishimura said. “The figures were just too hard to believe, and I thought it was possible the employee was suffering a nervous breakdown.”