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Pacific Capital Bank Told to Raise Capital

The Santa Barbara, Calif., lender is required by federal regulators to raise capital and make numerous other improvements.



) --

Shares of

Pacific Capital Bancorp


were down 10% in late trading Friday, following an announcement by the Office of the Comptroller of the Currency that main subsidiary

Pacific Capital Bank

had entered into a consent order with the regulator.

"Consent order" is the fluffy new name bank regulators are using instead of "cease and desist order.

The OCC is requiring the bank to achieve and maintain a tier 1 risk-based capital of at least 9% within 120 days and a ratio of total capital to risk-weighted assets of at least 12%, within 120 days. The agency said that its requirement for Pacific Capital Bank to meet these capital requirements meant the agency no longer considered the bank to be

well capitalized


For most banks, the minimum tier 1 risk-based capital ratio needed to be considered well capitalized is 6%.

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The OCC order requires the bank to submit a capital plan to the regulator within 90 days, along with a strategic plan. If the bank fails to submit an acceptable plan within 90 days or fails to meet the minimum required capital ratios, the agreement calls for Pacific Capital Bank's board of director to submit a "proposal to sell or merge the Bank, or liquidate the Bank."

The order also requires the bank's board of directors to assess and improve its executive management team, under supervision of the OCC. Various improvements to credit administration, collections and loan portfolio management are also required.

According to Pacific Capital Bank's most recent call report, nonperforming assets -- including nonaccrual loans and repossessed real estate -- comprised 6.13% of total assets as of March 31. The bank's annualized ratio of net charge-offs (loan losses less recoveries) to average loans was 6.62% for the first quarter.

A first-quarter net loss for the bank of $72.6 million followed a 2009 net loss of $405 million, as provisions for loan losses ate into the bank's capital.

Pacific Capital Bancorp announced Tuesday it was extending a tender offer until June 30 for the holding company and the bank's outstanding trust-preferred securities from 20 cents on the dollar to 40 cents on the dollar. If the tender offering is successful, it will retire $67.3 million in trust-preferred securities and allow the holding company and the bank to book a gain of $40.4 million.

As we have seen with


(BBX) - Get Report

, it is very difficult to complete a heavily discounted tender offer to retire trust-preferred securities. Please see


10 Bank Stocks Trading Below Book Value

for more on BankAtlantic's efforts.


Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.