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Japan to order Deutsche Bk units to improve-paper

TOKYO: Signs of a new scandal possibly involving foreign banks in Japan emerged on Wednesday with reports the top financial watchdog may be ready to act against five Deutsche Bank AG affiliates.

The Financial Supervisory Agency (FSA) plans to order the five affilates operating in Japan to improve their operations, the influential Nihon Keizai Shimbun financial daily said.

Deutsche Bank and the FSA both refused to comment on the report.

The FSA believed the firms had sold financial derivatives products in a move to hide clients' financial losses and their internal controls on operations were too lax, the newspaper said.

The order would affect the bank's Tokyo branch, Deutsche Asset Management (Japan) Ltd and the Tokyo branch of Bankers Trust Co, which joined the Deutsche Bank group last year, and two other group firms, the newspaper said.

Deutsche Bank has been engaging in large yen-based trades, some said to be sales of complex financial products, traders said.

The bank is often a strong bidder in the yen money market because it needs to raise ample cash to cover its big yen business, which also includes speculative deals in Tokyo's debt market, they said.

If any violation of the securities and exchange law is found, the FSA may also impose penalties on Deutsche Securities, the newspaper said.

On February 15, Japan's securities trading watchdog began investigating the Tokyo branch of Deutsche Securities Ltd, the stock brokerage arm of Deutsche Bank.

At that time, a company spokesman said the branch believed the investigation was only a regular inspection by the Securities and Exchange Surveillance Commission (SESC).

REGULATORS KEEN TO SHOW TOUGH STANCE

Last August, the FSA inspected Deutsche Bank's Tokyo office.

That month FSA regulators also visited four other offices of the Deutsche Bank Group, including the Tokyo branch of Deutsche Morgan Grenfell.

Just last week, unlisted Norinchukin Bank, Japan's largest agricultural financial institution, said the securities watchdog was investigating whether a eurobond deal violated the law.

Norinchukin Bank said it bought the bonds from Norinchukin Asset Management Co Ltd without knowing the bonds were worth less than face value. If done knowingly, such a purchase could be judged to be loss compensation, which is prohibited.

Japanese regulators have been keen to show they are taking a tough line against both foreign and domestic banks to improve standards.

Their most dramatic action came last year when a scandal engulfed Credit Suisse Financial Products, a Credit Suisse CSGZn.S subsidiary, which lost its business licence in one of the harshest penalties ever imposed on a financial firm in Tokyo.

Japanese regulators had been investigating suspicions of inappropriate transactions to help clients conceal losses by bounding them from one account to another, possibly by using derivatives transactions.

Japan's FSA, born in 1998 out of a series of scandals that entangled the powerful Ministry of Finance, has become known for tough and transparent supervision of financial firms on the basis of clear and fair rules a break from the murky discretionary system of the past.-Reuters