Capitol Bancorp's (CBCRQ) deal to sell a struggling New Mexico subsidiary has fallen through.

Capitol, in Lansing, Mich., had agreed to sell the $48 million-asset Sunrise Bank of Albuquerque to Weststar Mortgage late last year. The two sides agreed in mid-March to cancel because of regulatory and other obstacles, Weststar Chief Executive Kent Wiechert said Thursday.

Weststar, also in Albuquerque, had applied to regulators to become a bank holding company, and it planned to make its mortgage operations a wholly owned subsidiary of Sunrise, Wiechert told American Banker.

But the companies failed to get the Federal Deposit Insurance Corp. to lift a cease-and-desist order related to Sunrise before the closing deadline. The February 2010 order mandates that Sunrise develop a plan to sell itself to or merge with an FDIC-insured bank not controlled by Capitol.

"It became apparent that some of the contractual agreements we wanted to see prior to the closing, especially the lifting of the cease-and-desist, were not going to happen, so we decided to look for another target," Wiechert said.

Weststar withdrew its application for holding company status on March 20, according to the Federal Reserve Board's website.

In February, Capitol injected $1 million into Sunrise to raise its Tier 1 capital ratio to 4% and prevent its seizure by regulators, Capitol said in an annual report. In November, New Mexico regulators warned that Sunrise could be seized if it did not recapitalize itself. Sunrise had a Tier 1 capital ratio of 2.01% and a total risk-based capital ratio of 4% as of Dec. 31, according to the FDIC.

Capitol had $1.7 billion in assets and 12 bank subsidiaries as of the end of 2012, according to data from the FDIC. Capitol has been seeking to reorganize itself through bankruptcy. It did not respond to a request for comment.

The termination of the deal was first reported in Albuquerque Business First.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.