Daiwa Bank Ltd. said it planned to file a motion Monday in U.S. District Court in New York to dismiss fraud and conspiracy counts against it in the alleged cover-up of $1.1 billion of bond trading losses disclosed last September.
However, legal experts said it remains highly unlikely any of the charges would be dismissed, because of their comprehensive nature.
Lawyers said the best Daiwa could hope for would be leniency in the court's verdict, given executives' belief that they were acting in the bank's best interest.
"Legally speaking, the conspiracy and fraud counts were fairly solid and will be difficult to dismiss," said a Washington-based lawyer. "But as a practical matter, the reactions of the bank in the context of what was then going on in Japan, including the precarious financial conditions and concerns of the Ministry of Finance about perceptions of Japanese banks, may allow a proceeding judge to mitigate the criminal liability for Daiwa's actions."
The filing was in response to indictments released in November and December by the U.S. Attorney against Daiwa and its New York branch manager, Masahiro Tsuda, alleging conspiracy to defraud the Federal Reserve Board.
U.S. Attorney Mary Jo White indicated at the time that penalties could exceed $1 billion if Daiwa were found guilty. Mr. Tsuda faces as many as eight years in prison and $500,000 in fines if convicted.
This month, Mr. Tsuda pleaded not guilty to the charges before a federal magistrate in U.S. District Court in Manhattan. The trader responsible for the losses, Toshihide Iguchi, has already pleaded guilty to conspiracy and fraud charges. In November, U.S. regulators ordered Daiwa to shut down its U.S. operations by the end of February.
Daiwa's move to fend off the charges has largely failed to reassure market observers, who continue to believe the bank's operations will be hampered by the scandal for some time to come.
Moody's Investors Service cut its long-term rating Monday on Daiwa debt, to Baa1 from A3, citing "longer term damage" from the trading loss as well as the shutdown of the bank's U.S. operations and possible fines.
The rating agency noted that, although Daiwa has taken steps to strengthen internal controls and could profitably redeploy its resources into faster growing Asian markets, "significant expenses arising from the scandal will significantly depress the bank's profitability and constrain its financial flexibility over the near term."
Moody's analyst Felix Kaiser also said Daiwa's problems might hamper its efforts to write off troubled realty loans, putting Daiwa at a disadvantage to other Japanese banks.
Daiwa has about $13 billion of U.S. assets, as well as agencies, branches, and representative offices in 15 U.S. cities. Sumitomo Bank Ltd. is to take over most of Daiwa's U.S. assets, and both banks have said they are discussing a possible merger.
Moody's said a merger with Sumitomo could prompt a debt upgrading but added that the talks are "currently too unclear to incorporate into the bank's ratings."
