Daiwa Bank New York Branch

Table of Contents

Introduction 2

Daiwa Bank History 3

Background & Events Leading to the Case 5

Steps Taken to Alleviate the Problem 7

Managing Risk 8

References 9

Introduction

Daiwa Bank New York branch losses of more than $1 billion during 1990’s is one of the largest trading loss its kind in history. The executive vice president of Daiwa’s New York branch confessed in a 30 page letter to the president of Daiwa Bank in July 1995 that he had lost around $1.1 billion while dealing in US Treasury bonds. He had traded away the bank’s money over 11 years while using his position as head of branch’s security custody department to cover up the loss by selling off securities owned by Daiwa and its customers. The loss is that huge because of the cover ups by Iguchi over a period of years, and then by senior managers of Daiwa.

When the bank finally reported the losses to the US Federal Reserve Board, the bank and its officers faced criminal indictments. Moreover one of the largest commercial bank in Japan was kicked out of US markets. There were also long-term personal repercussions for Daiwa’s senior managers. Five years after the debacle broke, on 20 September 2000, in a decision that was immediately challenged; a Japanese court in Osaka told 11 current and former board members and top executives from Daiwa to pay the bank $775 million in damages.

Even though the loss was one of the largest in the history, the Daiwa bank was survived because of $200 billion of assets and $8 billion of reserves. However, the punishment by US regulators and public humiliation dealt a massive blow to Daiwa’s reputation. The scandal set in train a long term change in strategy as Daiwa reined in its international ambitions and concentrated on its core businesses in Japan and Southeast Asia.

The record-breaking award, which followed legal action by shareholders, was to atone for the management failure of oversight, attempted cover-ups, and the breakdown of risk...