Japan bank CEO plans to resign after $13.9 billion bond losses
Sign up now: Get ST's newsletters delivered to your inbox
Norinchukin Bank chief executive Kazuto Oku will step down as its paper losses on bond holdings rose to 1.57 trillion yen (S$13.9 trillion).
PHOTO: BLOOMBERG
Follow topic:
TOKYO - Norinchukin Bank chief executive Kazuto Oku plans to resign to take responsibility for the Japanese lender’s massive losses from wrong-way bets on foreign bonds, according to a person familiar with the matter.
Mr Oku, 65, will step down at the end of March, the person said, asking not to be identified discussing the private information. Managing executive officer and chief financial officer Taro Kitabayashi, 54, will be nominated to replace him effective April 1, according to the person.
A spokesperson for Norinchukin said nothing has been decided, declining to comment further.
Norinchukin became one of the most prominent victims of a surge in US interest rates, which drove down the value of its foreign bond holdings, while a jump in dollar-funding costs outweighed returns from these securities.
A government panel in January urged Norinchukin to diversify its investment portfolio and increase board members with experience in financial markets, including outsiders.
But more sweeping changes to the business model are unlikely. The unlisted bank acts more like an investor, with only a small portion of its balance sheet dedicated to lending.
It is owned by the country’s roughly 3,300 agricultural cooperatives, which depend on returns from the bank because of limited demand for loans in the countryside.
Norinchukin reported wider losses in February as it boosted investments in riskier leveraged loans and sought additional capital. Its losses of 1.4 trillion yen (S$12.4 billion) in the first nine months of its fiscal year ending in March were close to the 1.5 trillion yen annual loss it had previously projected.
The bank also reported 1.57 trillion yen (S$13.9 billion) in paper losses on its bond holdings.
Global markets have been fixated on how big the losses will end up, as the lender’s own estimates grew along with the clean-up of its portfolio. As part of the overhaul, the bank has said it plans to invest in bonds, stocks and project finance, as well as securitised products such as collateralised loan obligations (CLO).
Under Mr Oku, who has been president since June 2018, Norinchukin was one of the biggest investors in CLOs, before paring back the investments amid growing regulatory scrutiny in Japan. Now it is returning to the market, with its holdings of the packaged leveraged loans jumping to 8.2 trillion yen last quarter, a 26 per cent increase on the previous three months.
It is not the first time for Norinchukin to change its leadership following investment missteps. CEO Hirofumi Ueno stepped down in 2009 after the bank lost money on asset-backed securities during the global financial crisis. BLOOMBERG
