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Mizuho Financial Group Inc. plans to repay all public funds received during a government-backed capital injection by the fall of 2006 and form an alliance with the Bank of New York to boost profitability, sources said Friday.

Mizuho is now confident it will be able to use earnings and reserves to pay back the remaining 1.5 trillion yen in public funds by the middle of fiscal 2006, some six months earlier than initially planned, they said.

The government has injected a total of 12.4 trillion yen in public funds into Mizuho and other Japanese banks to help stabilize the ailing banking system over the past several years. The injection was made through the purchase of preferred shares or subordinated bonds

Mizuho has been gradually paying back the funds, halving public funds outstanding at the group to 1.5 trillion yen.

Mizuho would be the first of the three major banking groups to complete repayment of public funds and free itself from government regulations that restrict lending to small companies and force cutbacks on personnel expenses.

Mitsubishi Tokyo Financial Group Inc. has already paid its portion back, but is set to merge in October with UFJ Holdings Inc., which still has some 1.5 trillion yen left to return. Sumitomo Mitsui Banking Corp. has published a plan to complete its repayment of public funds by the end of fiscal 2007.

As for the tieup talks between Mizuho and the Bank of New York, the sources said the two banks are in the final stages of negotiating a business alliance in asset management and other fields.

The potential alliance is the third tieup with a U.S. bank Mizuho has announced in as many days. On Wednesday, Mizuho said it planned to tieup with Wachovia Corp. and Wells Fargo & Co.

Mizuho hopes the alliance with Bank of New York will improve its profitability by enhancing efficiency in management of pensions and other assets. The tieups with Wachovia and Wells Fargo are aimed at developing investment products for individual customers. Mizuho will aim to drastically bolster its earning capacity by strengthening its partnerships with the three U.S. banks.

The repayment of the public funds and the new alliances will be incorporated into Mizuho’s new medium-term business program, along with a plan to list its shares on the New York Stock Exchange.

The banking group may announce the program as early as next week they said.

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