Daiwa Bank admitted yesterday that it had connived with Toshihide Iguchi, now under arrest in New York, to continue selling US bonds after he had confessed to massive hidden losses.
The revelation further enflamed the row between the US regulatory authorities and the Japanese bank, which has had its US operations placed under a cease-and-desist order. "It is a fact there were instructions to sell government bonds for the purpose of paying interest as an emergency step to prevent Iguchi from fleeing, but this was not a cover-up," Daiwa said.
Mr Iguchi, Daiwa's former senior bond trader in New York, pleaded guilty on Thursday to a series of crimes, including what he termed a "conspiracy with managers" to conceal a $1.1bn (pounds 700m) loss on unauthorised dealing. Daiwa said it had ordered Mr Iguchi to continue selling bonds to earn profits with which to make up the interest payments due on bonds that were apparently still on Daiwa's books but which in fact had been sold off.
"If the whole thing had become open, it would have become difficult for Iguchi to stay in New York. He might have fled or committed suicide, which would have made it impossible for us to find out what happened," Daiwa said.
US authorities are investigating why the bank waited six weeks after it was alerted to the problem to inform the banking supervisors. US prosecutors allege that after Daiwa's president received Mr Iguchi's confession letter on 13 July, the bank falsely told the US Federal Reserve Board on 31 July that it still held $600m in US government bonds that had been sold.