July 31 (Bloomberg) -- Aozora Bank Ltd., the Japanese lender controlled by U.S. buyout fund Cerberus Capital Management LP, said first-quarter profit fell 75 percent as fees declined and returns on investments in hedge funds withered.

Net income dropped to 9.33 billion yen ($86.6 million) in the three months ended June 30 from 37 billion yen a year earlier, Aozora said in a statement today. The Tokyo-based bank left unchanged its full-year profit forecast of 44 billion yen.

Aozora's stock slumped 18 percent during the quarter, the biggest decline of any Japanese bank, after a parent operating loss of 25 billion yen in the year ended March 31. Chief Executive Officer Federico Sacasa and other executives took pay cuts after annual profit plunged 93 percent, the bank said last month.

Aozora recorded a one-time profit of 109 million yen in the quarter, compared with 4.9 billion yen a year earlier when it wrote back bad-loan provisions. Total costs related to bad loans totaled 3.8 billion yen in the quarter.

Shares of the bank rose 0.4 percent to close at 263 on the Tokyo Stock Exchange before the earnings announcement. The stock's first-quarter decline compares with a 13 percent gain by the 84-company Topix Banks Index.

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

Last Updated: July 31, 2008 02:54 EDT