(Corrects incoming CEO's current title to deputy president, not chairman, and corrects story and 1st bullet as Aozora did not say Cerberus will sell entire stake)
* Cerberus may sell 55 pct stake
* Aozora says CEO Prince to step down, be replaced by deputy president Baba
* Aozora shares close down 9.02 pct
By Junko Fujita
TOKYO, Sept 27 U.S. buyout firm Cerberus Capital Management LP may sell its 55 percent stake in Japan's Aozora Bank Ltd, the lender said on Thursday, sending its shares down more than 9 percent in their biggest one-day fall in a year.
Cerberus intends to sell part of the 821 million Aozora shares it owns in a share buyback scheme that the lender plans to launch, Aozora said in a statement. The remaining shares may be sold in the market or through a private transaction as early as this year, it said.
Aozora said the New York-based private equity firm did not provide detail on how much of its stake it would sell through that process. The bank's statement also did not specify a time frame for Cerberus' share sales.
Aozora said the private equity firm's sales of the initial tranche of shares would represent "its first step in a disciplined and orderly process for the sale of Cerberus' shares over time".
At current market prices, the sale of the entire stake could fetch around $2.5 billion.
The lender also said chief executive officer Brian Prince will step down and be replaced by Shinsuke Baba, currently the de puty president o f the bank. The changes will be effective after a board meeting on Thursday.
Mid-sized lender Aozora, formerly called Nippon Credit Bank, was temporarily put under government control during Japan's financial crisis in the late 1990s, when banks were sinking under the weight of loans that went sour with the bursting of an asset bubble that had emerged a decade earlier.
The bank said last month it will spend 227.6 billion yen ($2.9 billion) over a decade to pay back about 180 billion yen in public funds, ending months of speculation on how and when it will return the bailout money injected during the crisis.
Cerberus first bought a minority stake in Aozora in 2000 and then boosted its holdings in 2003 to become the lender's biggest shareholder.
The sale of Aozora Bank would mark another exit from Japanese investments for Cerberus. The buyout firm plans to sell its holdings in Seibu Holdings, an operator of railway, resort hotels and real estate properties, and has hired investment banks to handle the sale, sources have told Reuters.
Aozora shares fell to as low as 222 yen, or 13 percent, on Thursday morning before erasing some of the losses to end down 9.02 percent at 232 yen. (Writing by Muralikumar Anantharaman; Editing by Miral Fahmy) (813-6441-1840, email@example.com, Reuters Messaging:firstname.lastname@example.org)