Daiwa Bank
| Daiwa Bank | A Case Study | |
Background and History
Daiwa Bank, or Osaka Nomura Bank as it was first called, was founded in 1918 in Osaka, Japan by Tokushichi Nomura. It was created mainly to take advantage of the new capital Japan had amassed from foreign commercial ventures and domestic industrialization. Its securities division experienced huge growth in volume and profits that it almost functioned as different entity. Japanese industry spectacularly grew in the 1930s, but after the war the Allied occupation forces enacted a variety of laws aimed at decentralizing the industry. Part of this was that the bank was forced to change its name to Daiwa Bank, Limited.
In 1948, Daiwa Bank established a foreign department and the following year it was authorized as a foreign exchange bank. Daiwa opened representative offices in New York and London in 1956 and 1958, respectively as it was also gaining stronger presence in Tokyo. The bank opened more overseas offices, in Los Angeles in 1970, Frankfurt in 1971, Hong Kong in 1976, and Singapore in 1979. It established a new trust headquarters in 1985 to reinforce its position in trust banking, promote fee income, and demonstrate its ability to accommodate the increasingly diverse needs of Japanese society. Daiwa, like most Japanese banks, made its profits through lending, but failed to implement appropriate oversight procedures when it turned to high-volume securities trading. It was not until 1980s that Daiwa’s entry to trading securities would lead to a scandal with longtime repercussions.
In September 1995, the news reported that one of its New York bond traders, Toshihide Iguchi, had embezzled funds and altered bank records in order to conceal 11 years of losses than amounted to $1.1 billion. Five years later, Daiwa was still enduring the impact of the New York scandal when a Japanese court ruled on the shareholder suit when a number of former and current management officials were ordered to pay
Background and History
Daiwa Bank, or Osaka Nomura Bank as it was first called, was founded in 1918 in Osaka, Japan by Tokushichi Nomura. It was created mainly to take advantage of the new capital Japan had amassed from foreign commercial ventures and domestic industrialization. Its securities division experienced huge growth in volume and profits that it almost functioned as different entity. Japanese industry spectacularly grew in the 1930s, but after the war the Allied occupation forces enacted a variety of laws aimed at decentralizing the industry. Part of this was that the bank was forced to change its name to Daiwa Bank, Limited.
In 1948, Daiwa Bank established a foreign department and the following year it was authorized as a foreign exchange bank. Daiwa opened representative offices in New York and London in 1956 and 1958, respectively as it was also gaining stronger presence in Tokyo. The bank opened more overseas offices, in Los Angeles in 1970, Frankfurt in 1971, Hong Kong in 1976, and Singapore in 1979. It established a new trust headquarters in 1985 to reinforce its position in trust banking, promote fee income, and demonstrate its ability to accommodate the increasingly diverse needs of Japanese society. Daiwa, like most Japanese banks, made its profits through lending, but failed to implement appropriate oversight procedures when it turned to high-volume securities trading. It was not until 1980s that Daiwa’s entry to trading securities would lead to a scandal with longtime repercussions.
In September 1995, the news reported that one of its New York bond traders, Toshihide Iguchi, had embezzled funds and altered bank records in order to conceal 11 years of losses than amounted to $1.1 billion. Five years later, Daiwa was still enduring the impact of the New York scandal when a Japanese court ruled on the shareholder suit when a number of former and current management officials were ordered to pay
References: Bizcovering. 2008. Retrieved on October 6, 2012 from http://bizcovering.com/business-law/toshihide-iguchi-and-daiwa-bank-securities-trading-scandal/ Case Study – Daiwa Bank. 2000. Retrieved on August 29, 2012 from http://202.70.81.13/itd/OTH00009/Course%20Materials/Day%208/S1C%20-%20Case%20Studies/Case%20Study%20Daiwa%20Bank.pdf Funding Universe. 1996. Retrieved on October 2, 2012 from http://www.fundinguniverse.com/company-histories/the-daiwa-bank-ltd-history/ The Daiwa Bank Case. 2000. Retrieved on September 10, 2012 from http://dspace.lib.niigata-u.ac.jp:8080/dspace/bitstream/10191/15002/1/34(1-2)_107-138.pdf The Independent. 1995. Retrieved on October 5, 2012 from http://www.independent.co.uk/news/business/us-orders-daiwa-bank-shutdown-1537096.html The Key to Financial Management: Management. 2004. Retrieved from September 27, 2012 from http://fic.wharton.upenn.edu/fic/papers/99/9942.pdf The New York Times. 1996. Retrieved on October 5, 2012 from http://www.nytimes.com/1996/02/29/business/daiwa-bank-admits-guilt-in-cover-up.html Wells, J. T. (2012). Principles of Fraud Examination (3rd ed.) Hoboken, NJ: Wiley.