WASHINGTON — A regulatory order forcing Downey Financial Corp. to limit asset growth, dividend payments, and debt issuance nudges the $13 billion-asset Newport Beach, Calif., thrift toward two survival options: raise capital or sell.

But sources said Tuesday that neither option is probable.

"They are in survival mode now," said Chris Whalen, managing director at Lord, Whalen LLC's Institutional Risk Analytics. "This institution has to get a big investor or it has to get bought."

Ken Thomas, an independent bank consultant and economist based in Miami, said Downey will find it difficult to raise capital, especially in light of the new Office of Thrift Supervision requirements.

"It's going to be an uphill battle for them," Mr. Thomas said. "There's only a limited pool worldwide of available capital for American banks and at some point they will get a full appetite.... They are going to be competing with other banks that don't have these regulatory problems.... It's clear the situation is getting worse not better."

Downey disclosed the order late Monday. It was issued by the Office of Thrift Supervision on July 15, according to a source close to Downey. The order essentially requires agency approval before the thrift can take any action.

Among the things the OTS must approve: dividend payments, asset growth beyond net interest on deposit liabilities, new debt issuance, and any transaction with an affiliate or subsidiary.

The thrift must also give the OTS prior notice of management changes. It can only pay certain severance or compensation with OTS approval.

The thrift made the contents of the order public in a filing with the Securities and Exchange Commission in which it said it will also be subject to higher deposit insurance premiums as a result of its deteriorating condition. Its stock dropped 25% on Tuesday, closing at $1.57.

The order came after Downey posted a second-quarter loss of $219 million — nearly double what analysts had forecast. Following its earnings release on July 24, Moody's Investors Service and Standard & Poor's Ratings Service downgraded Downey's debt.

In addition, the thrift announced last month the retirement of its co-founder and longtime chairman, Maurice McAlister. Mr. McAlister, 83, owns 20% of the shares and headed Downey for 51 years.

Downey also said last month that it had hired Sandler O'Neill & Partners LP to advise it and help it find capital or a buyer.

The thrift has about $1.9 billion of problem loans on its books, roughly 15% of its assets — nearly double the proportion at Jan. 1. Its second-quarter loan-loss provision soared 27-fold from a year earlier, to $259 million, and its tangible capital ratio fell 2.4 percentage points, to 7.6%.

"They can't survive at that level of loss," Mr. Whalen said.

Several analysts said it appeared the OTS had waited too late to take action.

"It's nice they are involved now, but I don't know they can change the outcome," said Gary Gordon, an analyst at Portales Partners LLC. "The things they talked about doing are not going to make the loan losses any less. At this stage it is not going to change the outcome very much."

The OTS has already come under fire for its supervision of $32 billion-asset IndyMac Bancorp, which collapsed last month in the largest thrift failure in U.S. history. Critics say the agency waited too long to try to correct problems at the California thrift, a charge the agency disputes.

In its filing, Downey, like IndyMac, said it has seen bigger deposit withdrawals. But a source close to Downey said the thrift has recovered 40% of the deposits it lost in July. Still, it made it clear it faces major obstacles.

"If elevated levels of net deposit outflows resume, the bank's usual sources of liquidity could become depleted, and the bank would be required to raise additional capital or enter into new financing arrangements to satisfy its liquidity needs," Downey said in the filing. "In the current economic environment, there are no assurances that we would be able to raise additional capital or enter into additional financing arrangements."

The thrift said its sources of liquidity are limited to advances from the Federal Home Loan Bank of San Francisco and, if necessary, loans from the Federal Reserve Bank of San Francisco. On June 30, it had borrowed $1.5 billion, equivalent to 12.1% of its assets, from the Home Loan bank.

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