UPDATE 1-Japan's Aozora Bank cuts forecast on GMAC stake

TOKYO, Aug 7 (Reuters) - Japan's Aozora Bank (8304.T: Quote, Profile, Research) said it will fall 40 percent short of its earnings estimate for this year, as the medium-sized lender continues to suffer from its investment in U.S. financing firm GMAC LLC.

Aozora, which is nearly half-owned by U.S. private equity firm Cerberus Capital Management [CBS.UL], has had its profits eroded since taking a $500 million stake in GMAC as part of a Cerberus-led group in 2006.

The bank said it now expects a group net profit of 26.2 billion yen ($239.4 million) for the year to March 2009, down from its previous projection of 44 billion yen.

Losses related to GMAC, the former financing arm of General Motors Corp (GM.N: Quote, Profile, Research), last year prevented Aozora from meeting regulatory earnings targets.

A second straight year of poor earnings could prompt the Financial Services Agency, Japan's regulator, to demand the resignation of the bank's management.

Aozora still owes the Japanese government almost 180 billion yen from a bailout in 1990s, and therefore must furnish the FSA with yearly earnings targets.

Cerberus took Aozora public in 2006 after buying its failed predecessor.

The bank also revised its recently reported first-quarter results. Group net profit for the three months ended in June totalled 2.9 billion yen, down 92 percent from a year earlier, the bank said.

Aozora had said that first-quarter group net profit was 9.3 billion yen, a 75 percent decrease from the previous year. (Reporting by David Dolan; Editing by Chris Gallagher)