Mizuho has been under pressure to raise new capital after top lender Mitsubishi UFJ Financial Group <8306.T> raised about $15 billion and third-ranked Sumitomo Mitsui Financial Group <8316.T> about $20 billion in their two rounds of fundraising between December 2008 and February this year.
Mizuho raised only $5.7 billion in the same period.
Timed with the multi-billion-dollar capital raising, Mizuho plans to announce the departure of its chairman and those of its two core banking units on Friday, the Nikkei business daily reported, a move that would strengthen the control of current President Takashi Tsukamoto.
A capital raising of 800 billion yen would be within the market's scenario, said Nana Otsuki, a bank analyst at UBS in Tokyo. But she added uncertainty remains as to whether that would be enough for Mizuho as it has not been determined how stringent new capital rules would be.
Shares of Mizuho ended down 4.7 percent, against a 1.1 percent fall in the benchmark Nikkei average <.N225>. Its New York-traded ADRs fell 1.4 percent overnight.
While a capital raise by Mizuho has been widely expected, it seems the timing is a bit earlier than some in the market have expected, said Yumi Nishimura, deputy general manager of investment strategy department at Daiwa Securities Capital Markets.
Japanese banks have been moving to raise capital to pre-empt the pending government move in line with international guidelines published late last year. Up to now they have relied heavily on preferred securities and preferred shares but these may no longer count toward core capital under the new regulations.
In December, the Basel Committee on Banking Supervision published draft reforms requiring that the predominant form of Tier-1 capital be common shares and retained earnings, aiming to erect a buffer against risk-taking to prevent another financial crisis.
The new offering would boost the amount of shares outstanding by about 30 percent based on Mizuho's market value of 2.65 trillion yen.
Mizuho is planning to approve the offering at a board meeting on Friday and sell the shares to domestic and overseas investors in June, the sources said, speaking on condition of anonymity because the deal has not been made public.
In a statement, Mizuho said there was nothing to disclose. A spokeswoman declined to comment further.
Nikkei said Mizuho Chairman Terunobu Maeda, Mizuho Corporate Bank Chairman Hiroshi Saito and Mizuho Bank Chairman Seiji Sugiyama will step down -- a handover of power from the generation that has led the group created a decade ago by a merger of three banks to a younger team led by the current president.
In one of the most stringent scenarios for the new regulations, which exclude preferred shares, deferred tax assets and others, Mizuho's core capital ratio would stand at 1.29 percent as of the end of December, UBS estimates.
MUFG's stands at 5.78 percent, and SMFG's at 4.5 percent after the bank raised capital in January, it said.
UBS's Otsuki said she estimated a capital raising of 800 billion yen would add about 1.35 percentage points to Mizuho's core capital.
Along with its two domestic rivals, Mizuho is expected to have returned to profit for the year ended in March after suffering massive losses a year earlier when the banking sector was hit by the global financial turmoil and resulting economic downturn.
While its earnings have been buoyed by a decline in losses from bad loans and its stock portfolio as the overall economy makes a modest recovery, analysts said Mizuho is unlikely to deliver strong topline growth anytime soon.
Not only for Mizuho but also for other Japanese banks, it's very challenging to lay out a growth strategy, said Chikako Horiuchi, analyst at Fitch Ratings in Tokyo, citing a very thin interest spread on their domestic lending amid prolonged deflation.
It's also very hard to expect their overseas operations to become their earnings driver soon, she said.
Mizuho is scheduled to announce its earnings results on Friday.
(Additional reporting by Taiga Uranaka; Editing by Jean Yoon)