Draconian penalties for brokers as Japanese swoop on racketeers

The racketeering scandal surrounding Japan's biggest financial institutions escalated yesterday after the Finance Ministry imposed draconian penalties on Nomura Securities and Dai-Ichi Kangyo Bank, while more than 100 official investigators mounted a huge raid on the giant Yamaichi Securities.

The moves forced Daiwa and Nikko, two other of Japan's "big four" brokerages, to deny reports that they had also been caught up in the scandal, involving allegations that payments were extorted from banks by the alleged "sokaiya" gangster, Ryuichi Koike.

The government moves mark a dramatic attempt to tighten up on regulation of the industry ahead of Japan's "big bang" reform of financial services. The punishments meted out to Nomura and Dai-Ichi Kangyo Bank, two of the country's largest financial institutions, were the most severe ever to be imposed for violations of securities or banking laws.

Nomura has been ordered to suspend stock dealing on its own account until the end of the year and to halt operations at one of its corporate divisions until December. It has also been suspended from public bond auctions and underwriting until the year-end.

Penalties levied on Dai-Ichi include a ban on new domestic lending, other than housing loans, until the year-end, and a similar moratorium on new overseas business, apart from lending, and from opening new overseas branches and offices or new domestic branches until August 1998.

The bank has also been prohibited from making investment trust sales from its branches, making use of holding companies, or liquidating assets by new methods - all activities due to be liberalised as part of Japan's "big bang" reforms - until August 1998. Both firms were told to draw up proposals to sharpen up their internal regulation to prevent a recurrence of the scandal.

Analysts estimated that the penalties would hit Nomura's profits harder than Dai-Ichi and some warned that the resulting loss of clients might never be recovered by the giant brokerage.

Nomura's president, Junichi Ujiie, yesterday gave a public apology for the group's "inappropriate behaviour" as he announced salary cuts for senior board members.

The company would cut the remuneration of its president and chairman by 30 per cent during the suspension of equity dealings ordered by the Finance Ministry, he said. Senior managing director-level officials would lose 20 per cent, managing directors 15 per cent and directors and auditors 10 per cent.

Separately, investigators from the government prosecutor's office and the Securities and Exchange Surveillance Commission yesterday raided Yamaichi. A source was reported to have said that Yamaichi had "generally" admitted to illegally paying compensation for losses incurred by a corporate client linked to Ryuichi Koike.