Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, November 18, 2011, from 10:06 a.m. to 10.30 a.m.)

[Opening Remarks by Minister Jimi]

Today, I do not have anything particular to announce.

[Questions & Answers]

Q.

I will ask you two questions.

First, regarding Olympus Corporation, a syndicate of banks revealed the policy of continuing to support the company. What is your view on that?

A.

I am sorry to say that the Financial Services Agency should refrain from making comments, as that is a matter concerning the management decisions of individual financial institutions.

In any case, the FSA is resolved to move quickly, in close cooperation with relevant bodies, including the Tokyo Stock Exchange, so as to ensure that the company take steps to accurately grasp the truth and make timely disclosure.

Q.

I have one more question. Regarding Aozora Bank, which has received public funds, the bank has increased dividend payment even though the repayment of the public funds has not been completed. What do you think of that?

A.

Again, I am sorry to say that the FSA should refrain from making comments, as that is a matter concerning an individual financial institution's dividend policy. Generally speaking, banks recapitalized with public funds are required to improve their corporate value while earning stable profits under business revitalization plans. However, I understand that the specific level of dividends is appropriately determined based on the management decisions of individual institutions in light of the implementation of the plans and business performance, among other factors.

The managers of private financial institutions may make various decisions at their discretion under business revitalization plans, as I mentioned now. In that sense, generally speaking, I understand that the level of dividends is determined appropriately based on individual banks' management decisions.

Q.

In relation to Olympus, the top official of the company's main creditor bank recently said that his bank had failed to see through the window-dressing. Generally speaking, what do you, as the minister in charge of financial administration, think of the role and the responsibility of main creditor banks in ensuring the transparency and fairness of borrowing companies?

A.

Generally speaking, it is appropriate that main creditor banks grasp the situation properly. Even so, as corporate governance has become a very prominent issue now and we have implemented such measures as J-SOX (Japanese version of the Sarbanes Oxley Act), which has reformed the governance system, I believe that companies should make specific efforts regarding information disclosure.

Frankly speaking, main creditor banks wielded very strong power 27 or 28 years ago, when I became a Diet member. However, the main creditor bank system based on “keiretsu” corporate groups became a major issue in the Japan-U.S. Structural Impediments Initiative. From my career as a politician, I say that the main creditor banks of the keiretsu groups used to wield very strong power and the main creditor bank system drew very harsh criticism from around the world. If I remember correctly, structural reform started after the so-called Maekawa report (on structural reform proposals) was issued by a former Bank of Japan Governor during the era of the Nakasone cabinet.

My frank impression is that the main creditor bank system is gradually weakening in my own constituency as well. An increasing number of companies do not rely on main creditor banks. Although there are still main creditor banks, my general impression is that their power of governance on companies has become very weak compared with 27 or 28 years ago.

However, as I have repeatedly mentioned, as a basic premise, private financial institutions should naturally extend loans using funds entrusted by depositors and repay the deposits with interest added. They naturally owe responsibility to depositors, so the public nature of their business is ensured under the Banking Act. In that sense, broadly speaking, I believe that banks have social responsibility.

Q.

I am Abe from Facta Publishing.

My question concerns BNP Paribas Securities.

In the past, BNP Paribas engaged in inappropriate practices, including those related to exchangeable bonds issued by Mitsubishi Electric Corporation and (convertible bonds issued by) Urban Corporation and the FSA took administrative actions against the company. This time, a credit trader of the company sold a financial product at an unfairly low price through Japan Bond Trading Co. Ltd., so the Securities and Exchange Surveillance Commission is expected in due course to recommend that the FSA take administrative action. Is the FSA considering taking a different action than previously taken, such as suspending the company from business operation, against BNP Paribas, which has repeatedly engaged in such inappropriate practices?

A.

BNP Paribas, the parent company, is the largest private financial institution in France, as you know. When I visited Paris in August last year, I met with the president of BNP Paribas. BNP Paribas currently holds the largest amount of deposits in France, as you know, and I take it that your question concerns a securities company affiliated with the bank. While I am ready to listen to opinions carefully, I do not think that it is appropriate for me to talk about that, as it is a matter concerning an individual company. In any case, fairness is very important in matters like this. While I suppose that there are various opinions, I will make appropriate judgment. As this concerns an individual company, I would like to refrain from making comments.

Q.

Regarding Olympus, which was mentioned earlier, Mr. Junichi Hayashi, an outside director of the company was the head of BNP Paribas' bond trading division when Mitsubishi Electric's exchangeable bonds were sold, before the inappropriate practice came to light in 2002. BNP Paribas was partly involved in various illegal practices employed by Olympus to skirt market-value accounting rules and conceal losses.

The fact that a person from BNP Paribas, which engaged in inappropriate practices, serves as an outside director is inappropriate under Japan's outside director system, I would presume. What is your view on that?

A.

As the cases of Olympus and BNP Paribas are matters concerning individual companies, I am sorry to say that I would like to refrain from making comments at this time.

Q.

At your press conference last Friday, you said it would not be appropriate to conclude in light of an isolated case like this that listed Japanese companies in general and the Japanese market as a whole lack discipline. However, this is not an isolated case. Hasn't the FSA realized that there is a structural problem in that foreign securities companies like BNP Paribas are involved in inappropriate practices such as “tobashi” (concealment of losses by removing them off the balance sheet through a fraudulent practice)?

In June, many temporary members were added to the Business Accounting Council, including people who oppose the International Financial Reporting Standards (IFRS), such as Mr. Takashi Wachi, who is honorary chairman of Terumo Corporation, a medical equipment maker. Terumo has a very close relationship with Olympus and is a shareholder of the company. Isn't the inclusion of people who oppose IFRS in the council an attempt to conceal scandals like the Olympus case by delaying the introduction of IFRS?

A.

You are letting your imagination fly. Terumo has achieved remarkable growth in the medical field as I know from my experience as a doctor. Mr. Wachi was a director of Fuji Bank, if I remember correctly, before joining Terumo, and he has grown a struggling Terumo into a leading company, so I see no problem with him joining the council. He is a man of character with sound judgment and he rose to the position of a director at Fuji Bank. Terumo is Japan's No. 1 company in its area of expertise in the medical industry. As he has rebuilt Terumo, I believe that he is a capable manager. The various things you mentioned now are quite new to me, and I believe that they are completely wrong.

Regarding corporate accounting standards, the SEC (U.S. Securities and Exchange Commission) has very recently issued a staff paper. It was issued yesterday or the day before yesterday, and I received a report on it. Although the SEC has said it will set forth a direction by the end of this year, it is not so easy. Of the world's 500 major companies, around 180 have adopted IFRS, and naturally, U.S. companies are not included among them. However, the SEC has conducted analysis and issued various reports. While the SEC has said it will decide its approach within 2011, the fact that a staff paper like that has been issued at this time makes me wonder what it is thinking now. I think that IFRS is a different matter from the Olympus case.

Q.

However, foreign media organizations and institutional investors are very distrustful of the Japanese accounting standards. I think that delaying the application of IFRS may undermine Japan's credibility. What are your thoughts on that?

A.

I do not agree with you at all. Rather, the equivalence of the Japanese accounting standards with the U.S. accounting standards and IFRS was assessed and it is globally recognized that the Japanese standards are internationally acceptable. IFRS has been introduced in Europe. When I visited France recently, I met with Chairman Haas of the French Accounting Standard Authority. He told me that although France has introduced IFRS without much debate within the government, there are now various opinions. I think that in order to make the economy larger and stronger, it is necessary to introduce accounting standards that satisfy most people around the world. As I already mentioned, the equivalence of the Japanese accounting standards was assessed, and it has already been said that IFRS and the U.S. and Japanese standards are internationally acceptable. As Japan allows voluntary application of IFRS as you know, companies which wish to adopt it may do so. In that sense, I think that there is a difference in opinion.

Q.

Let me ask you just one more question.

In the Olympus case, overstatement of a goodwill value has been mentioned. I think that the Olympus case has proved that the Japanese accounting standards have defects, including the permission of the inclusion of goodwill in financial statements. Even so, do you believe that the Japanese accounting standards are internationally acceptable?

A.

They are quite acceptable. Their equivalence was properly assessed.

Q.

The Olympus case has shown that they are not acceptable.

A.

I made a statement about the Olympus case at a previous press conference and the news agency Reuters carried various articles so far. The Olympus case is an isolated incident. Now, the FSA is carefully monitoring the situation, and I believe that the case does not apply to Japanese companies in general.

Q.

What is the basis of your belief that apart from Olympus, there are no such cases?

A.

Governance is exercised under the Japanese accounting and audit systems, and listed companies have appropriate governance systems. I believe that the market is fair and transparent.

Q.

But until we wrote about the scandal, nobody, neither an auditing firm nor the main creditor bank, was able to detect it. Isn't that correct?

A.

The facts are now being investigated, so it would not be appropriate for me to comment on the Olympus case at this time.

(End)

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