June 10, 2009 / 4:20 PM / 9 years ago

UPDATE 1-Colonial BancGroup shares fall after regulators' order

(Adds DBRS downgrade, updates share movement)

June 10 (Reuters) - Shares of Colonial BancGroup Inc CNB.N lost a quarter of their value Wednesday, a day after the struggling lender said its banking unit agreed to a cease-and-desist order with regulators, requiring the bank to increase capital levels and reduce problem assets, among other things. [ID:nBNG466188]

DBRS rating agency downgraded the ratings for Colonial BancGroup and its related entities, saying the order will further strain the company’s financial flexibility and may hamper its ability to raise additional capital.

On Tuesday, Fitch Ratings also downgraded Colonial deeper into junk status, saying the likelihood of the company’s executing a $300 million pending infusion from a consortium of investors may be “negatively impacted.” [ID:nN09406378]

On March 31, Colonial said investors led by Taylor, Bean & Whitaker Mortgage Co agreed to invest $300 million in the company, a condition for the bank to get government funds.

However Sandler O’Neill analyst Kevin Fitzsimmons said the company, in a brief conversation with the analyst, emphasized that the order does not affect an agreement with an investment group to invest in the company.

“That said, what remains unclear and we think investors will focus on is what the announced C&D implies about regulators’ willingness to approve the TBW-led injection and the related willingness of the U.S. Treasury to make the TARP/CPP investment in Colonial,” Fitzsimmons said in a note to clients.

Colonial BancGroup was not immediately available for comment.

Shares of the company were trading down 25 percent at 91 cents at midmorning Wednesday on the New York Stock Exchange. They traded as high as $13 last September. (Reporting by Anurag Kotoky in Bangalore; Editing by Mike Miller and Anil D’Silva)

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