Nov. 12 (Bloomberg) -- Shinsei Bank Ltd. Chief Executive Officer Thierry Porte will step down and be replaced by the company's chairman and former president, Masamoto Yashiro, the company said after posting a wider-than-expected first-half loss.

Porte will resign effective today, the Tokyo-based bank, part owned by private-equity investor Christopher Flowers, said in a statement. The company posted a 19.3 billion yen ($197 million) loss in the six months ended Sept. 30, exceeding its forecast for a 15 billion yen loss.

Porte, 51, was named as Yashiro's successor in December 2004 and presided over the bank's first loss as a listed company in the year ended March 2007 before returning it to profit the following year. Moody's Investors Service downgraded Shinsei's credit ratings last week, saying Porte's 580 billion yen acquisition of General Electric Co.'s local consumer-finance units in September increased the company's risk assets and reduced its capital adequacy.

``Shinsei will be able to raise funds more smoothly from regional banks and gain support from the government if Mr. Yashiro becomes head of the bank, as he is personally respected and has global connections,'' said Nana Otsuki, a Tokyo-based analyst at UBS AG. ``Yet, it may be difficult to expect a dramatic change.''

Porte resigned to take responsibility for the bank's losses, Yashiro, 79, said at a press briefing in Tokyo. Shinsei needs more capital, the new chief executive said, while adding that the bank has no immediate plans to seek funding.

Canceled Sales

Shinsei and Aozora Bank Ltd. canceled sales of five-year debentures scheduled for last month and this month because of concern about turmoil in credit markets, two company officials said Nov. 10, declining to be identified.

Shinsei's stock fell 3.9 percent to close at 150 yen before today's statement, extending its loss this year to 63 percent.

The bank and rivals including Mitsubishi UFJ Financial Group Inc. are struggling to boost earnings as the biggest financial crisis since the Great Depression weakens the economy, fueling investment losses, bad debts and corporate bankruptcies. The nation's five biggest banks cut their full-year profit forecasts by a combined 1.16 trillion yen last month.

Non-interest income at Shinsei declined 61 percent to 31.8 billion yen in the six months ended Sept. 30, while bad loan costs rose 36 percent to 41.6 billion yen and interest income gained 25 percent to 70.5 billion yen. The first-half net loss compares with a profit of 23.2 billion yen a year earlier.

Mounting Losses

The bank had an 8.4 billion yen loss on bonds related to the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. and incurred a 15.6 billion yen loss on European investments, according to today's earnings statement.

Yashiro came out of retirement in 2000 to take the helm of the failed Long-Term Credit Bank of Japan Ltd., which was renamed Shinsei after he helped Flowers and Timothy Collins, founder of U.S. buyout firm Ripplewood Holdings LLC, buy the company for 121 billion yen.

Yashiro came out of retirement a second time in June this year to serve as Shinsei's chairman. He previously worked for 30 years at Exxon Mobil Corp.'s predecessor companies in Japan, serving as president of Esso Sekiyu KK from 1974 to 1979 and again from 1986 to 1989. He became country head of Citigroup's Japanese banking business in 1989 and retired as president of the company's local unit in 1997.

Porte's Legacy

Shinsei's stock has declined 79 percent since Porte was named president. The bank posted its first loss in fiscal 2006 after it wrote down the value of investments in consumer-finance companies. It returned to profit the next year with the help of a one-time gain on the sale of its Tokyo headquarters building, even as it recorded $291 million in losses on U.S. mortgage- related investments.

The bank lowered its full-year profit forecast to 12 billion yen from 62 billion yen in September, citing losses on debt related to Lehman after the Wall Street firm filed for bankruptcy on Sept. 15.

Porte, a Harvard Business School graduate, joined Shinsei in November 2003 as the bank's vice chairman. He worked for Morgan Stanley for 24 years, becoming president of its Japanese unit in 1995, according to a statement at the time.

The acquisition of GE's consumer-finance businesses will increase Shinsei's earnings by an estimated 30 billion yen in the six months started Oct. 1, the bank said in September.

Moody's lowered Shinsei's long-term credit rating to A3, the fourth-lowest investment grade, from A2 on Nov. 6.

``There is still uncertainty whether Shinsei Bank can generate the expected revenue and profit from the consumer finance business over the medium term,'' the ratings company said in a statement. ``The bank's profitability will remain under pressure due to intensifying stress from the global credit crisis and the weaker domestic economy.''

Shinsei spokesman Shinji Hasumi said Porte won't remain as an executive and will leave the company.

To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net

Last Updated: November 12, 2008 05:30 EST