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Finance

Mizuho fights to regain shareholder trust after ATM glitches

Regulators continues probe into Japanese megabank's third system trouble in 20 years

Mizuho has delayed the announcement of a plan to replace the head of its banking unit until the Financial Services Agency completes its own investigation. (Photo by Karina Nooka)

TOKYO -- Mizuho Financial Group CEO Tatsufumi Sakai appeared before shareholders in an annual general meeting on Wednesday and vowed to transform Japan's third-largest bank following a major computer glitch earlier this year.

Sakai highlighted steady improvements in the company's bottom line, but the whole meeting was overshadowed by the computer glitch, which brought 70% of Mizuho's ATMs to a temporary halt on Feb. 28. It was the third such trouble in Mizuho's 21-year history and a huge blow to the company's goal of becoming a major player in the field of financial technology in partnership with companies like SoftBank Group.

Sakai started the meeting by offering "deep apologies" over the customers who were stranded in front of ATMs for hours that Sunday, waiting for the machines to return their bank cards. The incident was followed by three other glitches, though on much smaller scales, over the ensuing two weeks.

The meeting came after a third-party panel of experts released its findings on June 15 following an investigation it conducted with two law firms and the consultancy Accenture.

The Financial Services Agency, Japan's banking watchdog, is conducting its own investigation, however, forcing Mizuho to delay the announcement of a plan to replace the head of its banking unit until the FSA probe ends.

Sakai said the incident was a "man-made" disaster, blaming Mizuho's poor internal coordination, weakness in supervising computer systems and lack of empathy with customers.

The incident occurred just as Mizuho was trying to go on the offensive after finally completing a new computer system for the banking group in 2019, replacing the hodgepodge of systems inherited from the three banks that merged to become Mizuho in 2000: the Industrial Bank of Japan, Dai-ichi Kangyo Bank and Fuji Bank.

Mizuho Financial Group CEO Tatsufumi Sakai speaks during the annual general meeting on June 23.   © Kyodo

The whole purpose of the merger was to pool the three banks' financial resources and develop information technology infrastructure together so they could better compete against U.S. banking giants. But internal rivalries delayed the release of the integrated computer system, causing ATM glitches on Mizuho's first day of operation in April 2002, and again in 2011 after the March 11 earthquake and tsunami.

The new system is designed to be more flexible and adaptable, allowing Mizuho to offer fintech and other digital services more quickly.

The past two incidents were widely blamed on management's lack of understanding about the importance of technology for financial services.

Sakai, citing the third-party report, said there were common strands in the past three incidents, suggesting that Mizuho still has a way to go toward rebuilding the group around technology.

The direct cause of the glitch was an overload of the computer system's temporary memory as the bank attempted to speed up the digitization of some customer accounts. The problem was compounded by poor coordination between Mizuho's system integration subsidiary, Mizuho Research and Technologies, and the developer of the new system's main computer, IBM Japan.

"To prevent a recurrence of such troubles, we will strengthen coordination across the group," Sakai said. He also said Mizuho will invest more to develop expertise in technology and computer systems.

One of the challenges for Mizuho, the smallest of Japan's three megabanks, after Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, is how to strengthen its technology and keep costs low.

Mizuho's five-year business plan that started in 2019 calls for cost-cutting. It is widely believed that as soon as the computer system was developed, the bank was keen to reduce its personnel and other expenses, leaving itself vulnerable to unexpected events.

"We will continue to implement structural reforms," said Makoto Umemiya, Mizuho's chief financial officer, at the annual meeting. "But that doesn't mean we will focus on cost-cutting. We will change the way we run our business."

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