Defected Directors Grumble on SBI

With quagmire in Korea, Deputy Head of Overseas Business Defected from Kitao, Leaving SBI.

September 20, 2013

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Mentally-exhausted Yasutaro Sawada, then President of SBI Securities left his position in March 2013. Following him, another key personnel, Shinji Yamauchi, former executive director who have been responsible for overseas investments, defected. A businessman, who met Yamauchi after he resigned, heard he quipped: “He never listens to anybody. He is like an uncontrolled train”. According to this person, Yamauchi criticized “him” in harsh words, and expressed the investment to Korea as dumping money into a bottomless swamp. Of course, “he” means Yoshitaka Kitao, the paramount leader of the SBI Group. That coincides with information we gathered as “Kitao does not listed anybody”, or “key personnel cannot stop him”.

Non- Nomura personnel feeling alienated

Sawada, who was called internally as ”Kitao’s concierge”, had been listening to Kitao’s audacious requests, and at last resigned as if he burned out. This time around, Yamauchi’s resignation represents another symbolic incident. Hearing his resignation, Taro Izuchi, EVP of SBI supposedly quipped; “I envy you. I can’t quit because I don’t have enough money”.

Yamauchi entered Nissho Iwai, a trading firm after he graduated from Defense University in 1983. Afterwards, he moved to Morgan Stanley, Trend Micro, and then joined Softbank, following Kitao who severed from Masayoshi Son, and assigned as the head of China Business in 2004. As Kitao’s protégés were mostly ex-Nomura, Yamauchi’s career, Defense University - trading firm – investment bank, was a bit different and he started saying from a couple years ago, as “I am at last stranger in this firm”.

Yet, his English skill and overseas connection, which were non-existent with Kitao’s ex-Nomura lieutenants, must have been precious for Kitao, who presided as “the head of overseas business”, appointed him in his deputy position. In fact, Yamauchi was on the list of “retiring directors” before the shareholders meeting of June last year. Yet, he stayed in SBI after he retired from executive director. A rumor had it at that time, that Yamauchi was circulating money from overseas investments, and hoarded personally. Kitao got mad, and prepared for a lawsuit, sources said.

The person who knows well on SBI’s overseas investment is Yamauchi. It is Hyundai Swiss savings Bank he describes as “dumping cash into bottomless swamp”, of which FACTA reported many times. We reported that SBI ended up investing 60 billion within this year alone, to fill its damaged equity base.

In August 22, SBI made a release as follows.

“Our full-consolidated subsidiary, Hyundai Swiss Saving Bank, and its three subsidiary banks, (“Hyundai Swiss Group”), had a shareholders meetings respectively, and proposed partial change in their article of incorporations were approved. Thus, the change of banks names, which has been postponed, will take place effective September 1st“.

Hyundai Swiss now changed its name to SBI Savings Bank. It means SBI no longer can get out of this quagmire. 90.3 billion yen goodwill, that SBI registered, weighs on its balance sheet. In this August 22nd release, SBI reshuffled the saving bank’s managers, and selected Megumu Motohisa as its representative director. Kitao must have picked Motohisa, as he once was presiding Takefuji, a money lender. Yet, even Orix is struggling to make money in consumer finance in Korea. A person who settled dust at Takefuji won’t be a useful talent.

Motohisa’s name disappeared from a directors list announced in September 6th. What happened?

Please remember. The original investment amount that SBI invested into Hyundai Swiss was only 800 million yen (SBI deleted this release from its home page in December 2012). As it usually does, SBI used the shares as a book-cooking vehicle, and inflated the value. SBI could not realize loss, and abhorred to agree on FACTA’s article, therefore ended up carrying 90 billion yen goodwill.

Tax Office Investigation on Fujiwara’s IRI

Kitao’s management responsibility of registering such goodwill must be scrutinized. We agree on Yamauchi’s remarks that he dumped money into bottomless swamp. Yamauchi left the following words when he resigned: “If I am with Kitao, it would be disastrous.”

Kitao throws out 90 billion in order to save 800million. An information which would be his concern came to us. The tax office started investigation on the founder of Internet Research Institute( IRI), Hiroshi Fujiwara.

FACTA April 2012 reported that Hong Kong-listed SBI did not make disclosure in the Tokyo Stock Exchange, when it removed its consolidated subsidiary, Homeo Style, from its consolidation. Fujiwara cooperated with SBI to be a counterpart of that deal. The loss-breeding Homeo Style was bought by him in lieu of 2.3 billion yen worth of IRI shares.

With this questionable deal, SBI was lending several billion yen loan to Fujiwara, with his assets as collateral. SBI’s explanation was inconsistent, claiming that there were no connected party transactions with Fujiwara, but his properties were taken as collateral of SBI. One television station brought the case to the tax office, saying the money flow must be unclear.

In FSA, a person in charge of risk money sees SBI’s practice of buying up IPO-failed shares as problematic.

Let’s see, following Yamauchi, who runs away from SBI.