Flagstar Bancorp Inc. can't get out from under.

Despite raising nearly $620 million in capital this year, the $14.8 billion-asset company announced late Monday that it will be turning to shareholders for as much as $500 million through a rights offering. The fresh capital is likely needed to satisfy regulators, who have limited the Troy, Mich., company's ability to grow and imposed other restrictions.

This week's announcement represents a stark contrast from Flagstar's posture just last month. The company then said it was positioning itself for a common stock offering, with an eye to the proceeds financing future acquisitions.

"It is clear that they need to get this done, since the regulators won't lift those constraints until they are better capitalized," said Bose George, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. "The rights offering, I think, is the route they had to take, because they saw underwriting an offering as too difficult to do."

At least $300 million of Flagstar's new capital is expected to come from MatlinPatterson Global Advisors LLC, a New York private-equity firm that has already poured $350 million into the company this year. MatlinPatterson would not comment for this story and Flagstar did not return a call for comment.

The private-equity firm's initial investment was tied to Flagstar's receipt of $266.6 million from the Treasury Department's Troubled Asset Relief Program.

Though George said he does not believe that MatlinPatterson regrets its investment in the embattled company, he said Flagstar's performance has been sobering.

"It is a safe assumption that when the investment was first made, they were expecting more income from Flagstar that would have strengthened the capital levels by now," George said. "That is not what has happened."

Instead, Flagstar has lost $442 million this year, including a $298.2 million loss booked in the third quarter. That loss stemmed from a $183.9 million valuation allowance on its deferred tax asset as well as a $125.5 million provision for loan losses.

Flagstar's nonperforming assets totaled $1.25 billion at the end of the third quarter, or 8.41% of total assets.

The company's thrift unit remained well capitalized, however, with a leverage ratio of 6.39% and a total risk-based capital ratio of 12.06%. Yet George said the company's tangible common equity ratio has dwindled to 4.5%.

Although that ratio is not an official regulatory ratio, it has become an increasingly important measure of a bank company's ability to withstand losses. Analysts typically consider anything below 5% as worrisome. An additional $500 million in equity would double the company's tangible common equity ratio, George said.

George said that in coming quarters he is not expecting another credit hit similar to the one Flagstar took in the third quarter. He is expecting the company to lose 8 cents per share in the fourth quarter, a fraction of the 64 cents it lost in the third quarter. He is forecasting a loss of 14 cents for all of next year.

Still, he said, the possible presence of a regulatory order signals that bank regulators do not consider the company's existing capital base strong enough to withstand future credit costs.

George said he does not have a good read on how the shareholder base might react to the offering, since most of the institutional investors exited the company when MatlinPatterson built its 80% stake this year. "Honestly, I am not sure if the current shareholders will want to step up or not," George said.

Rebel A. Cole, a finance and real estate professor at DePaul University in Chicago and a former Federal Reserve Board economist, was decidedly more pessimistic about Flagstar's future as well as its prospects for raising more capital: "I can't imagine why anybody would be putting more money into a black hole like that."

The thrift unit had $902.9 million of noncurrent loans at Sept. 30, and only $928.9 million of total equity, according to Federal Deposit Insurance Corp. data.

"When your nonperforming loans exceed your capital, you are pretty much a dead soldier," Cole said. Just to ensure capital stays at the same level it is now, "they need $1 billion," he said.

Without clarifying whether it has received a formal order, the company said regulators imposed restrictions on growth, accepting brokered deposits, making capital distributions and appointing directors or senior executives, among other things. It said that the restrictions could have an adverse impact on its thrift unit and that it intends to ask for a waiver on some or all of them.

Kevin Jacques, a finance professor at Baldwin-Wallace College in Berea, Ohio, and a former Treasury Department official, said he thinks getting one could be tough, even if Flagstar succeeds in adding capital through the rights offering.

"The regulators aren't going to put restrictions on these kinds of activities unless they view this thrift as in trouble and moving in the wrong direction," he said. "They are going to be very reluctant to waive anything."

However, Cole said, Flagstar's size and its commitment from private equity could sway regulators, despite its poor shape. "The last thing the FDIC needs is a $15 billion-asset institution to resolve when they can't even handle the $500 million-asset ones they have now," Cole said.

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