DAIWA BANK

Case Analysis

GROUP 06
Content

Background of the company

Summary of the case
Reasons For failure
Possible Ways of avoiding failure
Q&A
Background of the company

Established on 1918
Opened representative office in New York
in 1956
Began to offer pension trust banking
service in 1962
Entered into securities trading in 1980
Summary of the case

 Daiwa’s US office was established in New York in 1956.

 was an active participant in US Treasury security market
and within shorter period it became a Primary Dealer.
 One of the duties of New York branch was to manage
the custody of the US treasury bonds of clients.
 transaction reports were sent to the clients through the
back office of the branch.
Summary of the case (Cont’d)

 Toshihide Iguchi who had joined and worked in the Back

office of New York branch for several years, was
promoted as a trader in 1984.
 He started selling off bonds to pay off losses incurred on
his trading activities.
 No one noticed because of fabrication of transaction
statements to conceal those unauthorized sales.
 Even after being promoted as a trader, Mr. Iguchi
continued to supervise the back-office’s functions. This
meant that he was able to record the transactions
himself that he undertook as a trader.
Summary of the case (Cont’d)
 Due to lack of segregation of duties at New York branch, Mr. Iguchi
was able to pay off his trading losses with unauthorized sales of
bonds and fabricate the statements without being noticed.
 This bad practice has continued for 11 years until he himself
confessed in writing.
 Mr. Iguchi has fabricated nearly 30,000 trading slips to conceal
unauthorized sales of $1.1 Bn worth of bonds during the 11-year
period.
 $340 Mn fine for Daiwa bank and $775Mn damages payable by the
senior managers of Daiwa bank to the shareholders.
 close down its branch in the US and Mr. Iguchi was imprisoned for
four years and asked to pay $2.6Mn penalty.
Reasons For Failure

 Lack of segregation of duties

 Risk control lapses
 Lack of proper internal controls
 Failure to maintain computer records
 Dependence on the trust on employees rather than the oversight
Possible Way Of Avoiding Failure

 Implementing proper risk management methods

 Separating the front , middle and back office
 Establishing an efficient internal control system
 Implementing segregation of duties
 Emphasizing code of ethics
 Monitoring traders carefully
References

 https://www.scribd.com/document/82573189/Case-Study-Daiwa-Bank
 https://www.referenceforbusiness.com/history2/2/The-Daiwa-Bank-Ltd.html
 Lecture Slides
THANK YOU