Doral Needs Cash

Doral Financial (DRL Quote) sank 18% Monday after the struggling lender warned that it will need "significant outside financing during 2007" to stay afloat.

The San Juan, Puerto Rico, bank said it expects to require between $700 million to $800 million to fund payment of some outstanding debt and a securities class-action lawsuit settlement.

Doral said it's in talks with an unidentified investor that could lead to a deal that would "result in very significant dilution to the company's existing shareholders."

Under the settlement, which is tied to the company's 2005 decision to restate earnings going back five years, Doral investors will get $129 million, including $34 million from insurers and an aggregate $1 million from what Doral called "one or more individual defendants," none of whom was identified.

Shares fell 31 cents to $1.41.