With time running out for the area's second largest savings and loan, drastic steps are being taken to raise capital.

Shareholders of FirstFed Financial Corp., the parent of First Federal Bank of California, recently approved a plan to increase the number of authorized shares from 100 million to 5 billion in anticipation of a new offering.

First, however, the beleaguered thrift hopes to increase the attractiveness of its penny stock with a reverse stock split, a common but not necessarily effective strategy.

"Generally, these are not the sorts of things that bode well. I don't want to use the word 'desperation,' but it's got a little bit of that flavor," said Lynn Stout, a professor of corporate and securities law at UCLA.

Management said the split will be by a ratio of as much as one to 70, meaning shares of FirstFed now trading around 40 cents would be worth about $28 each.

FirstFed did not say when it expects to complete the reverse split or the offering, but analysts expect movement soon since regulators are pressuring the thrift to raise capital. With losses rising in a portfolio full of risky mortgage loans, the thrift was ordered to raise capital by Sept. 30.

Neither FirstFed nor California National Bank, an L.A. institution also ordered to raise capital by Sept. 30, has so far announced a new infusion of cash. Cal National Chief Executive Greg Mitchell did not return calls requesting comment.

However, James Barth, a senior fellow at the Milken Institute in Santa Monica, said regulators typically give institutions some leeway if they believe progress is being made toward raising capital. Since FirstFed has a plan in place and the market itself is turning around, regulators may wait before taking drastic action such as seizing the institutions.

"It's been quite difficult for any institutions trying to raise capital, (but) things are looking somewhat better for banks," he said.

FirstFed Chief Executive Babette Heimbuch, reached by phone at her office last week, declined to discuss the matter on the advice of counsel.

Capital Plan

Nara Bancorp Inc., the Koreatown holding company of Nara Bank, is another bank seeking to raise capital. However, unlike FirstFed or Cal National, it is considered well capitalized.

In a shelf registration with the Securities and Exchange Commission, Nara said it hopes to raise up to $150 million by issuing new securities, including common stock, preferred stock or warrants.


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