Nov. 11 (Bloomberg) -- Shinsei Bank Ltd., the Japanese lender merging with smaller Aozora Bank Ltd., reported a second quarter profit helped by costs cuts and the absence of losses related to Lehman Brothers Holdings Inc.’s collapse.

Tokyo-based Shinsei posted net income of 5.9 billion yen ($65.8 million) for the three months ended Sept. 30, compared with a loss of 30.1 billion yen a year earlier, it said in a statement today. The lender reiterated its full-year profit forecast of 10 billion yen.

Chief Executive Officer Masamoto Yashiro, 80, has reduced Shinsei’s workforce by more than 1,000, marked down asset-backed securities, and agreed to merge with Cerberus Capital Management LP-controlled Aozora since becoming CEO a year ago. Cerberus and private equity investor Christopher Flowers, Shinsei’s largest private investor, are backing the merger, as they focus on domestic lending after a combined $4.3 billion loss last year.

Net interest income rose to 51.9 billion yen from 34.8 billion yen in the year-ago quarter. Net credit costs declined to 13.1 billion yen from 33.2 billion yen. The bank will pay a 1 yen dividend to investors this year, it said in the statement.

Shinsei is also benefiting from its 580 billion yen acquisition of General Electric Co.’s Japanese consumer lending unit made in September 2008.

Merging with Aozora will help Shinsei boost its Tier 1 capital ratio. Shinsei’s Tier 1 capital ratio rose to 7 percent from 6 percent at the end of March, it said today. Aozora had an equivalent ratio of 13.6 percent at the end of June.

Shinsei, which recorded charges and losses of 29 billion yen in the year-ago first half, related to the bankruptcy of Lehman, fell 17 percent this year. Aozora has gained 30 percent, making it the best performing lender this year among 84 banks tracked in the Topix Banks Index.

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

Last Updated: November 11, 2009 01:58 EST