July 11 (Bloomberg) -- Shinsei Bank Ltd., the Japanese lender part-owned by private equity investor Christopher Flowers, agreed to buy General Electric Co.'s consumer lending operations in Japan for 580 billion yen ($5.4 billion).

Shinsei plans to acquire GE's Tokyo-based Lake unit and its mortgage-loan and credit-card businesses, the bank said in a statement today. The takeover will give Shinsei a lending business with 2,000 employees, 2.2 million new customers and 1,138 branches.

``The acquisition may be a means to survive'' for Shinsei by adding market share in the consumer lending industry, said Shinichi Tamura, a Tokyo-based analyst at Deutsche Bank AG. Shinsei failed to meet a government-mandated profit goal last year and posted a loss the previous year.

Chief Executive Officer Thierry Porte, 51, is investing in an industry that has been in decline since a 2006 crackdown on consumer lenders' interest rates and collection practices by the country's government and courts. GE's CEO Jeffrey Immelt, trying to revive shares after announcing a surprise first-quarter profit drop in April, is disposing of as much as $100 billion of financial assets.

Shinsei fell 3 percent to close at 358 yen in local trading before the announcement, after people familiar with the negotiations said the Tokyo-based bank and GE were in final talks.

Contracting Industry

Lake, which makes unsecured personal loans to individuals, has about 650 billion yen in outstanding credits, according to estimates released by Promise Co., Japan's second-largest consumer lender by market value.

``We are acquiring a high-quality portfolio with a great management team,'' Porte said at a press briefing in Tokyo today. ``Shinsei is uniquely positioned to be a game-changer in this industry.''

Shinsei didn't hire an adviser for the deal, Porte said.

Japan's consumer lending industry has been contracting since the government approved legislation in 2006 capping the interest rates consumer lenders can charge at 20 percent, down from 29 percent previously.

The nation's four biggest consumer finance companies posted losses totaling 1.7 trillion yen in the year ended March 2007 after making provisions for potential refund claims by borrowers who paid excessive fees and interest.

Selling Bonds

Three of the four lenders have sold convertible bonds this year to raise capital. Promise fell the most in six years on July 9 after scaling back a convertible bond sale by 30 percent, citing ``unstable'' markets.

Aiful Corp., Japan's biggest consumer lender by assets, plunged 11 percent on June 25 after Lehman Brothers Holdings Inc. said in a report the lender's parent may be insolvent. Aiful denied it has funding difficulties and later said it may sue Lehman.

Shinsei's existing consumer-finance units Shinki Co. and Aplus Co. returned to profit in the year ended March 31 after both posted losses the previous year.

Fairfield, Connecticut-based GE reports results today and has forecast earnings of 53 cents to 55 cents a share in the second quarter, reflecting the reduced 2008 earnings target Immelt announced in April. The average of 15 analysts' estimates in a Bloomberg survey is 54 cents a share, unchanged from a year earlier. GE shares have dropped 25 percent this year.

Shedding Assets

Since the beginning of the year, GE has agreed to sell its corporate charge card unit to American Express Co. for $1.1 billion. It agreed to swap GE Money units in Germany and the U.K. to Spain's Banco Santander SA in exchange for Italian commercial lender Interbanca SpA, which is valued at 1 billion euros ($1.58 billion). GE last year sold U.S. subprime unit WMC Mortgage and put its Japanese consumer business on the block.

In May, the company said it may divest its Australian home mortgage unit Wizard as loan growth slows after four interest- rate increases since August. The unit may be sold or moved into a joint venture or take on a partner, Mike Cutter, GE Money's chief executive officer for Australia, said at the time.

In April, GE posted a 12 percent decline in first-quarter profit from continuing operations to $4.36 billion. The company cited financial market turmoil that cut the value of investments and thwarted end-of-quarter dealmaking.

GE has done business in Japan since 1886, when it provided electric generators to a government printing factory. It entered the local consumer finance market by acquiring Minebea Shinpan Co. in 1994. Four years later, the unit bought Lake's personal loan business.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

Last Updated: July 11, 2008 05:33 EDT