How does Shinsei plan to recover from losses

due to exposure to Lehman?

Shinsei Bank, the Japanese lender part-owned by private equity investor Christopher Flowers, forecast profit to fall 80 percent after losses on debt extended to Lehman Brothers Holdings.

Net income will decline to 12 billion yen ($113 million) for the 12 months ending March 31, from the 60.1 billion yen a year earlier, the Tokyo-based bank said in a statement. The company in May forecast 62 billion yen profit.

Shinsei has about 38 billion yen in “exposure” to the bankrupt Wall Street firm, including a 25 billion yen unsecured loan and 9 billion yen in bonds, the bank said on Sept. 16.

“These figures leave a very bad impression,” said Hiromichi Tsuyukubo, a hedge-fund manager in Tokyo at Myojo Asset Management Japan, which oversees about $150 million. “The 38 billion yen to Lehman was already announced but the size of the downward revision is much bigger than expected.”

Shinsei sold its Tokyo headquarters to a Morgan Stanley real estate fund in March, keeping it from missing profit targets for a second straight year and removing a potential threat to the jobs of top managers at the time. The bank, which recorded $295 million in writedowns and provisions from investments tied to the U.S. residential mortgage market at end June, said it will make additional provisions on European asset-backed securities and investments.

Shinsei also said that it had completed the acquisition of General Electric's Japan consumer finance business for 580 billion yen. The new unit will boost full-year earnings by 30 billion yen, the firm said in a separate statement.

Shinsei is buying the Tokyo-based Lake unit and GE's mortgage-loan and credit-card businesses in Japan to boost its lending to consumers in the nation by almost two-thirds.

Chief Executive Officer Thierry Porte is betting that Japan's consumer finance industry, after contracting since a 2006 crackdown by authorities on interest rates and collection tactics, is poised to recover.

Will acquisitions overseas, especially units of Wall Street companies, be a better option for Shinsei?