The embattled Daiwa Bank has decided to liquidate one of its New York subsidiaries, as the Japanese government struggles to distance itself from the scandal of the bank's huge losses on the New York bond market.
According to sources quoted by the Kyodo news agency yesterday, the bank's US trust arm, Daiwa Bank Trust, will be closed down and its business transferred to other Daiwa branches. Between 1984 and 1987 two employees of the company incurred losses of $97m, which were finally written off in September last year. They came to light only this month during investigations into a separate bond scandal at the parent bank's New York branch, where a senior dealer, Toshihide Iguchi, racked up losses of $1.1bn during 11 years of illegal trades.
The US authorities are investigating both cases on the suspicion that Daiwa may have deliberately concealed the losses from banking regulators.
Last night the director-general of the Japanese Ministry of Finance's International Finance Bureau, Eisuke Sakakibara, conceded for the first time that senior Daiwa personnel may have acted improperly in keeping the losses hidden for so long. "I was deeply disturbed by the way the bank reported the Daiwa Trust business to us," he said, "because it does suggest some involvement on the part of the management."
The affair is embarrassing to the Ministry of Finance, which is struggling to rebut suggestions that it colluded with Daiwa in concealing Mr Iguchi's fraud. The former Daiwa chairman, Akira Fujita, visited the ministry's banking bureau on 8 August and said that the bank was investigating the losses.
In the days following this meeting, Daiwa actively increased its funding operations, in an apparent attempt to cover its losses. But the first that the US Federal Reserve knew of the problem was on 18 September.