If FirstFed Financial Corp. is less than well capitalized when it reports full-year earnings, regulators will require the Los Angeles thrift company to sell itself or liquidate.

Observers said the order from the Office of Thrift Supervision could amount to a death sentence for FirstFed.

The $7.4 billion-asset company, pummeled by losses on its option adjustable-rate mortgages, was more than well capitalized at Sept. 30, but the order signals that it might report slipping below that level when its fourth-quarter results come out, said Bert Ely, an Alexandria, Va., banking consultant.

"My expectation is we're going to see some pretty bad fourth-quarter numbers, which may seal the fate of this company," he said.

FirstFed, which has not said when it intends to announce fourth-quarter earnings, disclosed late Monday that it had received a cease-and-desist order.

Like many California financial institutions, FirstFed has been badly wounded by the real estate downturn. Six have failed there since July, including the $12.8 billion-asset Downey Savings and Loan, which also had heavy exposure to option ARMs.

FirstFed reported $156 million of losses for the first nine months of last year, and at the end of November it said its ratio of nonperforming assets to total assets had more than tripled from a year earlier, to 7.54%.

Capital levels at its thrift unit, First Federal Bank of California, have been eroding significantly in recent quarters, according to data from the Federal Deposit Insurance Corp. Though the thrift was well above the 10% minimum regulators require for well-capitalized status as of Sept. 30, the total risk-based capital ratio fell 557 basis points from a year earlier, to 15.87%.

The OTS said in the enforcement order that it wants a capital plan detailing how the thrift intends to remain well capitalized at the end of each quarter over the next two years, and that it wants updates every two weeks on how the plan is working.

If the thrift fails to maintain the required capital levels, it has 15 days to submit a contingency plan with specific time frames for selling or liquidating itself.

Such a harsh stance is unusual, said Chip MacDonald, a partner at the law firm Jones Day who tracks regulatory orders.

Though cease-and-desist orders have gotten stricter lately, regulators generally allow time for raising capital before requiring a sale, he said. "The trigger time of 15 days is particularly draconian."

This month FirstFed announced an offer to buy back up to $150 million of debt; it was unclear Tuesday whether the company had gone through with that plan. Bondholders had until Jan. 15 to opt in for the offer, which would have paid them 33 cents on the dollar.

Both Mr. Ely and Mr. MacDonald said the order, which took effect Tuesday, prohibits repurchasing any debt without approval from the OTS. "The question is have they closed on the transaction yet," Mr. Ely said. "I just can't imagine that the OTS would allow that to happen."

Regulators would likely want to preserve as much capital as possible, he said, and they might have imposed the order to block any debt from being redeemed.

Mr. MacDonald said FirstFed could have decided against going through with the buyback if executives felt its capital levels were in danger. The company had warned of deteriorating credit quality, he said.

In announcing the order — which also restricts the company from increasing its asset size — FirstFed said it would cut 10% of its work force, mostly in its single-family and commercial lending operations. Babette E. Heimbuch, FirstFed's chief executive officer, said in a press release that she had "deep regret" about laying off those 62 employees. "Given the economic pressures we are under, doing so has become necessary."

The company said the cuts would save $4.2 million annually. Executives there did not return a call seeking comment.

Brett Rabatin, an analyst at Sterne, Agee & Leach Inc. who follows other California companies, said FirstFed's chargeoffs — an annualized rate of 6.5% of loans as of Sept. 30 — suggest a high level of risk in its portfolio. He said regulators might have concluded that its credit quality is systematically weak.

"This is among the more aggressive [enforcement] actions you can get," Mr. Rabatin said. "I think they are trying to protect the bank insurance fund."

FirstFed's shares tumbled nearly 31% Tuesday on news of the enforcement order, closing at $1.09. Mr. Ely said the price equates to only about 3% of book value as of Sept. 30.

"That's pretty grim," he said. "The shareholders don't have much optimism about the company's survival, nor do they have much optimism about the company being able to sell itself."

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