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Japan's Mizuho sees assets shrinking on planned portfolio reshuffle

* Says $1.8 trln assets likely to shrink over three years

* To reduce unprofitable loans including low-rate mortgages

* To hold off on large scale acquisitions amid uncertainty

TOKYO, May 30 (Reuters) - Mizuho Financial Group’s $1.8 trillion of assets are set to shrink over the next three years as the lender plans to reduce holdings of mortgage loans and bonds to counter higher regulatory costs and ultra-low returns, its CEO said.

A reduction in assets will be a major shift for Japan’s second-largest lender which has grown assets by nearly a third over the past decade.

Mizuho CEO Yasuhiro Sato also said the lender will hold off on large-scale acquisitions that cost billions of dollars amid concerns about the global economic outlook.

“An acquisition of a U.S. bank, for instance, would cost at least 1 trillion yen ($9.1 billion). Under the current uncertain environment, an investment of such scale has been moved back,” he told Reuters in an interview.

The bank continues to look for acquisition opportunities and is targeting Asia’s banks, brokerages and asset management companies, he added. “Deals like 100-200 billion yen are within our scope,” he said.

Relatively unscathed by the global financial crisis of 2008, Mizuho and rival Japanese banks have built up their assets by aggressively expanding overseas.

But regulators globally are now requiring banks to set aside more capital to withstand shocks like the collapse of Lehman Brothers in 2008, making it costlier for banks to own assets.

The Bank of Japan’s negative interest rate policy has further driven down already ultra-thin returns from loans, adding pressure on Mizuho and rivals to review their asset portfolio.

Sato said the bank will continue to expand assets in growth areas but will trim unprofitable assets such as ultra-low interest rate loans by not rolling them over. He also said the bank will reduce holdings of bonds used for trading activities.

The bank plans to reduce the unprofitable portion of mortgage loans, which can be done by tying up with regional lenders outside major cities, instead of engaging in a race-to-the-bottom competition nationwide, he said.

Banks now have to consider attracting younger generations with convenience and new services, Sato said. “And this is where fintech can be utilised.”

Sato said the bank plans to launch a new business teaming up with fintech (financial technology) companies and it is currently studying several possibilities. He declined to elaborate.

Mizuho is also trying to transplant its successful bond underwriting business in the United States to Europe and Asia, Sato said. ($1 = 109.9200 yen) (Reporting by Taiga Uranaka; Editing by Muralikumar Anantharaman)

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