New headache for Downey

Federal regulators have issued a cease-and-desist order that requires Newport Beach-based Downey Financial to raise capital, name a permanent CEO, and sell its real estate. Downey is the largest financial institution this year to receive such an action. While it's not the end of the world, the Office of Thrift Supervision found that the thrift "has engaged in unsafe and unsound practices" (much of it related to aggressive lending practices that have come home to roost). Downey said it has raised $176 million in fresh capital - some of it from selling real estate- but that's just half of what regulators are requiring. Clearly, this is an uphill battle. From the WSJ:

The regulatory order sets a Dec. 31 deadline for Downey to meet its demand for new capital. The regulators are also asking Downey to submit a comprehensive plan within 45 days that outlines its plans to reduce assets, sell real estate and set its long-term objectives. Banks that fail to meet those types of deadlines typically can face more severe regulatory actions, such as the mandatory ouster of company officials.

The company is considered by federal regulators to be "adequately capitalized," a step below the top ranking of "well capitalized." Here's the LAT story.