In a financing coup that's expected to get it out of hot water with regulators, Fidelity Federal Bank recently completed the initial part of a $137 million recapitalization.

The Glendale, Calif.-based thrift announced last month that it had raised $118 million through sales of preferred and common stock and had obtained $28 million of commitments to buy more common stock by mid-December.

Even after the deduction of nearly $9 million of underwriting discounts and commissions, the recap should exceed the thrift's initial goal of raising $110 million.

But one part of the plan was dropped: the sale of an option to buy the thrift.

Investor relations manager Neil Osborne said that serious negotiations were held with a party he declined to name. He added that Fidelity and the party were unable to agree on a price the thrift considered fair for its shareholders.

Mr. Osborne said that once the financing has been completed, Fidelity Federal expects a supervisory agreement it entered into in June with the Office of Thrift Supervision to be terminated.

Among other things, the agreement required the $3.4 billion-asset thrift to establish a plan for becoming well capitalized. Fidelity is adequately capitalized but had warned that continuing loan losses could cause it to become undercapitalized if it could not raise more capital.

Fidelity Federal last turned an annual profit in 1992. Since then, it has lost a total of $326.5 million, including losses of $18.6 million for the first three quarters of this year.

The thrift has been stung by defaults on multifamily housing loans in Southern California, which constitute about three-quarters of its loan portfolio.

The recap had been extremely controversial, because it had been opposed by some of Fidelity's biggest investors, including Keefe Partners and J.P. Morgan & Co.

It also marked the third time in as many years that the thrift had slashed the book value of investors' holdings by selling more stock.

It could not be learned if Keefe Partners and J.P. Morgan participated in the offering, but it had been expected that they would not.

As of Sept. 30, Fidelity Federal's per-share book value was $5.53. After the recapitalization, the book value dropped to $2.51. The thrift's stock recently traded at $2.06, well below the $5.25 it fetched in an offering last year.

Observers said the fact that Fidelity Federal was able to complete its refinancing in the face of controversy sends a strong message that investors are bullish on Southern California.

"I think the Fidelity recap clearly demonstrates the high level of investor interest not only in the California marketplace, but also in California thrift franchises," said Stephen J. Trafton, chairman and chief executive of Glendale Federal Bank.

Glendale, a $15.9 billion-asset thrift, is based in the same Los Angeles suburb as Fidelity Federal.

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