FHLB of Seattle on path to begin dividend payments

WASHINGTON Oct 25 (Reuters) - The Federal Home Loan Bank of Seattle remains "undercapitalized" but is on track to begin paying dividends, the Federal Housing Finance Agency said on Monday.

The Settle Bank accepted a consent order agreeing to implement a business plan requested by the FHFA in April, the regulator said in a statement.

Under the consent order the Seattle Bank agreed to a stabilization period, ending June 20. 2011. Until then, it will continue to be classified as undercapitalized, a designation that prevents it from paying dividends or repurchasing capital stock.

The Seattle Bank may be in a position to redeem capital and begin paying dividends once it meets requirements for a capital management plan, the FHFA said. The agreement also requires the bank to make operational and risk management improvements, the FHFA said.

FHFA first considered the FHLB of Seattle "undercapitalized" in the first quarter of 2009.

"The Seattle Bank regards this agreement with the finance agency (FHLB) as a positive step toward achieving our goals of returning to repurchasing and redeeming capital stock and to paying dividends," Seattle Bank Chairman William Humphreys said in a statement.

The Seattle Bank is one of 12 regional banks in the Federal Home Loan Bank System. (Editing by Dhara Ranasinghe)