On the surface, Colonial BancGroup Inc. would appear to be an ideal candidate for the latest version of the Treasury Department's Capital Assistance Program, which is specifically designed to help weaker companies.

But analysts say the $26 billion-asset Montgomery, Ala., company, heavily exposed to Florida's ailing real estate market, is stuck right where it is — in no man's land. In November it had sought aid under the Capital Purchase Program, a predecessor to the Capital Assistance Program that was intended to spur lending at strong companies.

Colonial did get preliminary approval for up to $550 million of Troubled Asset Relief Program funds, but there was one catch: It had to raise $300 million of private capital under its own steam. And it has not done so yet.

"They need to raise capital before getting access to Tarp I, so why would they get access to Tarp II?" Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co. Inc., asked in an interview Tuesday. It remains unclear how Colonial would "fare in the earnings portion" of the stress-test analysis required under the latest version of Tarp. Last year it lost $880.5 million after earning $180.9 million in 2007.

He and others say Colonial's situation now is even more precarious, given its revelation this week that it has been operating under a memorandums of understanding with state and federal regulators for two months. The memo told Colonial it had to improve certain capital ratios by March 31 or face formal regulatory orders and possible seizure.

When Colonial said in late January that it was talking to private equity firms, it also belatedly announced it had to raise private capital on its own. Analysts say that it has again failed to communicate new developments in its quest for capital, and that the lack of communication could come back to haunt it.

Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said Colonial's tardy disclosure of the regulatory agreements could make it harder to raise capital in an environment where market conditions were already "extremely challenging."

David Byrne, Colonial's general counsel, said in an interview Tuesday that the company has asked Treasury for a full list of the conditions of Tarp assigned to every bank that has applied under capital purchase program. "We hope they will respond because it would put a lot of color on this area," he said. He said he knows of other companies that were asked to raise private capital, but have not disclosed that fact. He declined to comment further.

In its annual report filed Monday disclosing the memo, Colonial said its discussions with private equity firms continue, though it did not provide further details.

The memos' disclosure is just the latest public relations nightmare for Robert E. Lowder, Colonial's chairman and chief executive, who has been named with other executives in several lawsuits that question the timing of the disclosure of conditions for receiving Tarp funds. During his company's fourth-quarter earnings call in January, Lowder was asked if Colonial was operating under a prompt corrective action or a cease-and-desist order. "First of all, we are under no C&D, and we are under no prompt corrective action condition, so there is none of that outstanding," he quickly responded. Analysts agreed that even though the statement was accurate, Lowder could have been more candid about the Dec. 15 memo between Colonial Bank and the Alabama State Banking Department, as well as a Jan. 6 agreement between the company and the Federal Reserve Bank of Atlanta. Neither memo is considered a "written agreement," according to Monday's annual filing. Though Colonial Bank remains "well capitalized," the agreements require it to boost its Tier 1 leverage ratio 197 basis points from its Dec. 31 level, to 8%, by the end of this month. The bank must also raise its total risk-based capital ratio 63 basis points, to 12%.

Trabo Reed, Alabama's deputy banking superintendent, said he would not discuss the matter. Neither would the Atlanta Fed. Calls to Treasury Department were not immediately returned.

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