Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Tuesday, July 31, 2012, from 9:21 a.m. to 9:42 a.m.)

[Opening Remarks by Minister Matsushita]

At the cabinet meeting, the Japan Revitalization Strategy was approved. This is intended to lay the foundation for Japan's economic growth by achieving recovery from the Great East Japan Earthquake under the basic philosophy of opening up the frontier and creating new values. From the perspective of deploying physical, human and financial resources in order to pull Japan out of deflation, the strategy calls for the implementation of various policy measures by fiscal 2013, with a view to achieving an average economic growth of around 3% in nominal terms and around 2% in real terms over a period through fiscal 2020. The minister in charge reported on that.

The minister said he wants to make it possible to clarify prioritization by devoting efforts to the three priority sectors: the environment, life and agriculture, and forestry and fisheries, as well as small and medium-size enterprises.

[Questions & Answers]

Q.

Regarding insider trading related to public offerings of new shares, Daiwa Securities has decided on a 10% cut in executive compensation for the president and the chairman. Could you comment on that?

A.

As you mentioned in your question, on July 27, Daiwa Securities announced the results of its internal investigation and corrective measures. I am aware of the contents of the reports and measures. Daiwa Securities established an investigative committee comprised of lawyers and other people, identified facts, examined the cause, and formulated recurrence prevention measures. The Financial Services Agency (FSA) evaluates the company's recurrence prevention measures as appropriate on the whole. However, as I mentioned on various occasions, what is most important for recurrence prevention is, of course, the recurrence prevention measures formulated by the company to be implemented effectively.

Therefore, the FSA believes that it is necessary to check the implementation and continuation status of those measures, so we have decided to order the company to submit a report based on the Financial Instruments and Exchange Act (FIEA) so as to periodically check the implementation status of the recurrence prevention measures. If a problem is recognized with regard to the implementation status of the measures, we will of course take appropriate administrative actions.

Q.

I have one more question, which concerns AIJ Investment Advisors. Yesterday (July 30), accusations were brought against the company for the second time. Could you comment on that?

A.

It was on July 9 that accusations were brought against the company for the first time. This time, I understand that yesterday, on July 30, the Securities and Exchange Surveillance Commission (SESC) again filed accusations against three persons with the Tokyo District Public Prosecutors Office, including President Asakawa of AIJ Investment Advisors, for the use of fraudulent means, as specified under the FIEA, related to the conclusion of discretionary investment contracts. In response, the Tokyo Public Prosecutors Office again charged the three persons with fraudulent means under the FIEA and also fraud under the Criminal Code. Pension fund associations related to the accusations filed this time are different from those related to the accusations that were filed the previous time, on July 9. I recognize that this crime is of an extremely malicious nature.

The SESC has been strenuously conducting criminal investigation since March this year with a view to filing criminal accusations. I believe that the accusations filed this time and the subsequent charges brought by the Tokyo District Public Prosecutors Office, as well as the accusations filed the previous time, mark a major step in the pursuit of the responsibility of the people concerned.

In any case, regarding the AIJ problem, all of us at the FSA and the SESC are resolved to continue to do our utmost, including efforts to prevent a recurrence of similar problems. We will deal with this problem based on the recognition that the company committed the extremely malicious crime of cheating workers of their pension money.

Q.

I am Namikawa from Toyo Keizai. I would like to ask you about banks that have received injections of public funds. Some of the banks will face the repayment deadline this autumn. I am not talking about the injection of public funds related to the impact of the Great East Japan Earthquake. I am talking about banks that received injections of public funds before the earthquake.

Do you think that it will be sufficient that those banks merely repay the public funds? Or are you going to require them to do more than that?

A.

You know, there is the Early Strengthening Act (Act on Emergency Measures for Early Strengthening of Financial Functions). This is intended to restore the soundness of the financial functions by establishing a system of recapitalization, thereby facilitating the reconstruction of Japan's financial system and revitalization of the Japanese economy. Therefore, generally speaking, I believe that banks that have been recapitalized under the Early Strengthening Act need to strive to repay the public funds at an early date after carrying out reform to restore the soundness of their business management. In light of that, recapitalized banks should formulate business revitalization plans and appropriately conduct business and at the same time, they should make efforts to raise their profitability and increase their corporate value.

To that end, I also believe it is important for recapitalized banks to make steady efforts to establish a sustainable, stable business model.

If a favorable environment has been created for the banks to repay the public funds as a result of efforts based on their business revitalization plans and if they offer to make repayment, deliberation will be conducted and appropriate judgment will be made in light of the three principles of Deposit Insurance Corporation. That is what we will do.

Q.

In relation to the order for Daiwa Securities to submit reports, I would like to make sure about some points. When was the order issued, and what is the deadline for the submission of the report and on what is the company required to report?

A.

The order was issued last Friday (July 27). As to the specifics of administrative actions taken against an individual securities company, I cannot give a reply for the moment. The FSA has decided to periodically check Daiwa Securities' implementation status of recurrence prevention measures.

As I already mentioned, if a problem is recognized with the company's implementation status of the recurrence prevention measures, the FSA will of course take appropriate administrative actions.

Q.

As for the order for the submission of reports, will the FSA receive reports on the implementation status of the recurrence prevention measures and corrective measures announced by Daiwa Securities?

A.

That is correct.

Q.

In relation to this problem, could you tell me about the frequency of the required reports? Also, until when will the company be required to continue submitting reports?

A.

The company will be required to submit reports as needed and at a certain interval.

Q.

Does that mean the company will no longer be required to submit a report when it has been acknowledged to have made sufficient improvement?

A.

Put simply, that is correct. Naturally, in light of the present circumstances, the FSA will need to continue to require the submission of reports on whether the corrective measures are being implemented as needed and check the implementation status, so we will flexibly deal with this case as needed.

Q.

Let me make sure about one more thing. Nomura Securities, for example, also announced recurrence prevention measures. Has the FSA ordered Nomura Securities to submit reports?

A.

I understand that such an order has not been issued against Nomura Securities. We need to closely examine the results of the series of internal investigations conducted by Nomura Securities and the implementation of the corrective measures. However, the company has reshuffled its management team and expressed its strong resolve to carry out fundamental reform. Therefore, we will need to keep watching the effectiveness of the reform while placing strong hopes on it.

Q.

Regarding the case of Daiwa Securities, may I take it that you have concluded for the moment that it is not necessary to take such administrative actions as issuing a business improvement order, for example? While you said that you will consider taking administrative actions if you recognize a problem after receiving the company's report, may I take it that you do not see the necessity of taking such actions for the moment?

A.

As I mentioned earlier, we evaluate the company's recurrence prevention measures as appropriate on the whole, so we will appropriately check and keep monitoring the effectiveness of the measures while continuing to require the submission of reports. Naturally, if a problem is recognized, we will take appropriate administrative actions.

Q.

Let me ask a quite different question. You mentioned earlier the need to establish a stable and sustainable business model and increase corporate value. If that is applied to the banking business, may I take it that banks need to conduct their business operations in ways that give due consideration to the standpoint of borrowers?

A.

Generally speaking, Deposit Insurance Corporation has three principles that are applied when banks offer to repay public funds they have received, so we will make appropriate judgment in light of those principles.

The Early Strengthening Act requires recapitalized banks to implement measures to facilitate the provision of credit, including for small and medium-size enterprises (SMEs).

Based on the law, the FSA requires recapitalized banks to report semiannually on the implementation status of business revitalization plans. We will carefully monitor the status of profit and lending to SMEs.

Q.

Let me make sure about one thing. This Friday, on August 3, the deadline will arrive for the submission of reports on the internal review being conducted by 12 securities companies. At a recent press conference, you said that you were not considering announcing the results of the review. While I understand that the FSA does not intend to announce the results, what do you think of the view that the securities companies should voluntarily make the results public in some way or other?

A.

On July 3, the FSA asked the 12 companies to conduct and complete their review within one month. While the FSA will not announce the results of the review, we would like to strongly encourage them to announce the results.

Thank you very much.

(End)