JAPAN: SMBC faces ¥10 billion in losses over bogus loans

TOKYO (Kyodo News - Japan Times), March 15, 2008: Sumitomo Mitsui Banking Corp. extended ¥17 billion in loans to about 60 firms introduced by a Tokyo real estate agency, but around ¥10 billion of that appears to be irrecoverable, SMBC officials said Friday. The bank suspects the firms of lying on their loan applications and is considering lodging a criminal complaint, the officials said. The Financial Services Agency is meanwhile also studying the case, suspecting that SMBC, the core banking unit of the Sumitomo Mitsui Financial Group Inc., may have failed to properly examine the papers, agency officials said. "It is quite likely that fraud was committed through the use of artfully crafted documents (for loan applications), and we believe no members of our bank played any active role" in knowingly assisting the suspected misconduct, SMBC said in a comment issued the same day. The loans in question were extended from around November 2003 through the mediation of the Tokyo real estate agency, called Koshi Trust, which had business dealings with SMBC's corporate loan department in Koenji in suburban Tokyo. For three years since, the Koenji and two other Tokyo-area SMBC offices lent money to more than 60 companies to supply operating funds or help them purchase real estate, sources said. It was subsequently found that the corporate borrowers submitted forged financial statements and tax payment certificates and inflated the value of their property assets in the reports. Of the more than 60 firms, about 20 were dummy entities, the sources added. SMBC noticed the shady transactions around fall 2006 and began recovering the loans, at which time the outstanding loan balance stood at ¥17 billion. Even if the bank sold off collateral properties, about ¥10 billion of the loan money is probably irrecoverable, according to the sources. The firm closed its office after the alleged wrongdoing came to light and the company president has disappeared, the sources said. (C) The Japan Times _____________________________________________________________________ The Yomiuri Shimbun reported today: .......Meanwhile, the Financial Services Agency has started investigating the loans, suspecting the bank could have avoided this problem if it had conducted screenings appropriately, the sources said. The unrecoverable loans were extended from the Koenji corporate business divisions in Suginami Ward, and the Shinjuku corporate business division, both in Tokyo, and the Tsurumi corporate business division in Yokohama. Three SMBC bankers, including a management-level banker, were in charge of the loans, the sources said. According to the sources, the Koenji corporate business division originally did business with Koshi Trust and started extension of loans to small and midsized firms introduced by its president and others around November 2003. The banker in charge at the Koenji office moved to the Tsurumi office and left the loan dealings to his successor. At the Tsurumi office, the banker again was introduced by the Koshi Trust president to other clients. However, this banker was not involved in loans extended from the Shinjuku corporate business division to companies related to Koshi Trust. Initially only a few firms were introduced by the Koshi Trust president, but the number snowballed to more than 60 after about three years, according to the sources. About 20 million yen to 200 million yen was given per loan, and were extended as funds for business operations, buying real estate and other operations. Applications for all the loans passed screenings at the bank's corporate business divisions, the sources said. Many of the loans were short-term, with repayment terms of two to three months. Some money from the loans were used to repay debts for other firms, while the sources speculated that parts of the loans also were used to fund business operations at Koshi Trust. ....... The name of "the Koshi Trust president" has not been disclosed in the press reports. ________________________________________________________________ Another report in Yomuiri Shimbun said on March 15, 2008: Gangsters were temporarily listed as executives of a Tokyo real estate firm that introduced more than 60 small and midsize companies to Sumitomo Mitsui Banking Corp., which provided them with loans worth about 17 billion yen, of which 10 billion yen is considered unrecoverable, The Yomiuri Shimbun learned Friday. Since the gangsters served as executives of Koshi Trust, an effectively dormant real estate company of Shibuya Ward, Tokyo, during the time the loans were extended, the bank is conducting an internal investigation into whether thorough screening of its borrowers was carried out. According to a private credit information survey company, Koshi Trust was established in July 2000 with a workforce of more than 30 employees. It opened branches in Fukuoka and Funabashi, Chiba Prefecture, but it has since become dormant. © The Yomiuri Shimbun