UPDATE 2-Shinsei books Q4 net loss, forecasts rebound

* Q4 net loss totals 111 bln yen

* Forecasts profit of 10 bln yen for year to March 2010

* Shares finish flat before results

TOKYO, May 13 - Japan's Shinsei Bank reported a quarterly net loss of $1.1 billion on Wednesday, hit by losses on securitised products, but forecast a rebound in the current year, aided by cost-cutting and a recovery in lending.

Rescued by a government bailout in the 1990s and later sold to Western investors, Shinsei has been upended by bets on risky subprime investments overseas and a weak core lending at home.

Shinsei, nearly one-third owned by U.S. fund JC Flowers and Co, has now failed to turn a profit for three straight quarters and two of the last three years. The bank is in talks to merge with Aozora Bank, another struggling lender, sources have told Reuters.

But the bank's chief executive, Masamoto Yashiro, declined to comment at a news conference on Wednesday on whether Shinsei was pursuing such a merger.

The octogenarian Yashiro has promised a return to profit by building up domestic lending, but many analysts say Shinsei is too small to compete with Japanese giants such as Mitsubishi UFJ Financial Group.

Shinsei said its group net loss totalled 111 billion yen ($1.1 billion) for the January-March quarter. It made a profit of 26.6 billion in the same period a year earlier.

Reuters calculated the quarterly figures by subtracting the bank's nine-month results from the full-year numbers released on Wednesday.

In the current year, Shinsei expects a group net profit of 10 billion yen. That is below an average estimate of 23.4 billion yen in a poll of four analysts by Thomson Reuters.

Yashiro said the bank was still aiming to raise its Tier-1, or core capital ratio to 7 percent from 6.02 percent.

Shinsei had originally said it would reach that target by the end of last financial year on March 31, but fell short of doing so.

But Yashiro said taking more government money would not be an option at this point.

"It would not be easy for us to ask for money," he said.

Over the last 12 months Shinsei has been Tokyo's worst-performing bank stock, falling 67 percent.

Shinsei's shares closed flat at 142 yen before the announcement.