Mizuho Financial Group Inc. is in talks with financial authorities over the possible repayment of about 800 billion yen in public funds by the end of this month, sources said Friday.

This would cut its roughly 1.5 trillion yen debt to the government by half.

Mizuho has vowed to repay this cash in full during fiscal 2006.

The largest Japanese banking group in terms of assets will make the repayment by repurchasing preferred shares held by the government-backed Deposit Insurance Corp. of Japan, the sources said.

Mizuho will seek to carry out the share purchase in a manner that will generate a profit at DIC; no burden will thus be placed on taxpayers, they said.

Given the amount of Mizuho’s retained earnings, which serve as its financial resources for repaying the money, it is expected to repay all the public funds it received in the first half of fiscal 2006.

The other major banking groups also plan to repay by the end of fiscal 2007 all the public funds they received from the government in the late 1990s — a move that is expected to allow them to go on the offensive in managing their operations.

Mizuho comprises three core banks — Mizuho Bank, Mizuho Corporate Bank and Mizuho Trust & Banking Co. — and other subsidiaries and affiliates.

In 1998 and 1999, the banks that now comprise Mizuho received a total of about 3 trillion yen in public funds to replenish their capital bases. Mizuho already has repaid roughly half of it.

The banking group registered a record 627.38 billion yen in group net profit for the year to March 31, up 54.2 percent from the previous year.

Since 1998, the government has injected a total of 12 trillion yen into banks to restore their financial health. Banks that have received the funds are monitored and are required to submit rehabilitation plans.

Mitsubishi Tokyo Financial Group has repaid all of the public funds. Its planned merger with UFJ Holdings Inc. will give the bank a 1.5 trillion yen debt to the government, but the new entity plans to set aside reserves to repay the amount by the end of fiscal 2007. Sumitomo Mitsui Financial Group plans to repay its debt by March 2008.

The banks are accelerating their repayment of the public funds now that they have finally made progress in disposing of their nonperforming loans.

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