Executives’ cost-cutting measures are to blame for Mizuho’s troubles, financial watchdog says

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A staff shortage due to cost cutting and management’s poor understanding of personnel issues is to blame for recent system failures at Mizuho Bank, regulators said, following an investigation about the series of problems that have frustrated many of the bank’s customers. .

The bank and its parent company, Mizuho Financial Group Inc., received a business improvement order from the Financial Services Agency on Friday, resulting in the unprecedented resignation of three senior executives.

The problems were caused by a reduction in the number of staff tied to the system by executives, who prioritized cost reduction and ultimately weakened Mizuho’s ability to operate and manage its banking system, said regulators.

Mizuho Financial chairman and group CEO Tatsufumi Sakai apologized for the problems at a press conference on Friday night after the FSA said Mizuho had undermined confidence in the Japanese financial system.

A source from Mizuho said the lack of staff familiar with the huge and complex banking system was the cause of the frequent blackouts.

“Once the development (of the current central system in Mizuho) was completed, the people who worked there left,” the source said, adding, “It is true that the operational capacity was weakened.

Mizuho launched its current base system, known as Minori, in 2019 after its previous system suffered a large-scale failure related to donation transfers following the earthquake and tsunami of March 2011.

The development of Minori, a massive project to merge the systems of Mizuho’s three predecessor banks, involved around 1,000 companies, including Fujitsu Ltd.

Mizuho Financial Group Inc. chairman Tatsufumi Sakai (left) and Mizuho Bank chairman Koji Fujiwara leave a press conference after announcing their intention to step down. | KYODO

The number of systems-related staff at Mizuho decreased by around 60% at the end of March 2021 compared to March 2018. The talent drain meant an exodus of knowledge related to the system and its development.

“Mizuho felt a sense of urgency due to its lower profitability than competing banks, so it had no choice but to cut costs, resulting in lower labor costs and systems, “said an FSA official.

Another FSA official noted that the tendency of Mizuho executives to place a low priority on systems was at the root of the problem, saying there was “insufficient communication between the systems division and senior management.” .

The series of system failures have damaged customer confidence in Mizuho. At a press conference on Nov. 12, Sakai said there had been a slight increase in account cancellations due to the issues.

Still, the issues did not have a major financial impact on Mizuho. But an FSA official said Mizuho could “lag further behind other banks if his capacity to manage systems remains weak.”

The FSA has concluded that Mizuho does not pay enough attention to how his actions affect customers.

Such corporate culture issues have been reported following the 2002 merger of three banks that created Mizuho and the massive system failure in 2011. The latest incidents highlight the lack of progress in reforming the corporate system. corporate governance.

As Sakai and two other Mizuho executives announced their resignation, an FSA official said that “the problems will not be resolved by resigning only”.

“The important thing is how the new senior managers will think about finding the root causes of the problems and preventing recurrence,” the official said.

The FSA urges Mizuho to implement drastic structural reform, including appointing an information director with strong crisis management skills.

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