BankAtlantic Bancorp Inc.'s $8.7 million negative equity position shows the lengths it has gone to keep its thrift capitalized.

It also suggests time is running out on the debt-leveraged company to raise capital, industry observers said.

"They better come up with a plan, and they better come up with a plan real fast," said Dory Wiley, the president and chief executive at Commerce Street Capital LLC. "Today would not be too fast."

The Fort Lauderdale, Fla., company is taking steps to meet regulatory requirements. In June it is expected to sell 19 Tampa-area branches to PNC Financial Services Group Inc. The branch sale would net about $39 million and boost the company's capital levels by more than 145 basis points in the second quarter, putting its equity position back in the black.

But BankAtlantic needs about $330 million to recapitalize itself, said Michael Iannaccone, the president of MDI Investments in Chicago.

Alan Levan, BankAtlantic's chairman and chief executive, said in an interview Tuesday that "the bank has always been" well capitalized. "Even though BankAtlantic has suffered through the economic woes in Florida, the capital at the bank has been extremely consistent quarter after quarter, because we've done what's necessary to maintain that well-capitalized status," Levan said.

BankAtlantic said Monday that its equity fell into a deficit at March 31 after depleting the $119.6 million it had a year earlier. It had an equity surplus of $14.7 million in the fourth quarter. The company had more than $320 million in junior subordinated debt trust preferred securities at Dec. 31; it has tried unsuccessfully to buy back a majority of that debt.

The leverage and continued losses raise concerns among analysts about how the company can back its thrift over the long term.

"Florida is a nuclear wasteland for banking, and it is going to be radioactive for some time to come," said Jeff Davis, an analyst at Guggenheim Securities LLC.

BankAtlantic reported a $61 million first-quarter increase in nonaccruing loans, to $362.6 million, from a year earlier. On the upside, the pace of growth slowed from the fourth quarter.

The thrift is well capitalized based on regulatory standards, but the Office of Thrift Supervision ordered it in February to raise its total risk-based capital to 14% and Tier 1 capital to 8%, by June 30. Those ratios were 11.9% and 6.22%, respectively, at Dec. 31.

Banking companies in an equity dearth are not uncommon in community banking. For example, Integra Banc Corp and Capitol Bancorp were both levered in debt and hit negative equity in the fourth quarter.

Mike Alley, Integra's chairman and CEO, would not discuss recapitalization. He said that while negative equity isn't good for shareholders, regulators "are focused on the capital at the bank." A call to Capitol was not returned.

In the past, such companies often relied on trust-preferred securities and senior lines of credit to capitalize their banks and thrifts. As losses have eroded capital, banking companies have been left with lots of debt and depleted common equity, Iannaccone said.

BankAtlantic has deferred payments to its trust-preferred investors for more than a year. Most companies typically can defer for up to five years before being classified as defaulted, analysts said.

"The economy will be totally different by the time that would become an issue," Levan said.

While the thrift might be well capitalized, BankAtlantic's negative equity position does not bode well for its dealings with regulators, industry observers said. Parent companies are expected to support their units. Without equity they cannot do that.

The company's "primary role is to be that source of strength, and when it is in a negative equity position, it is no longer serving that role," Iannaccone said. "Regulators are looking at people, plan and strength. I am guessing that regulators are questioning all three of those things at this institution."

Companies in BankAtlantic's position have options, but they are limited and tough to accomplish.

Analysts and lawyers say, selling a bank through bankruptcy makes sense. AmericanWest Bancorp in Spokane, Wash., successfully navigated the process in December.

BankAtlantic could try to raise more capital, and has been seeking to do so, but analysts said it would likely take a large private-equity investor who would want controlling interest and a large hand in the company's daily operations.

Asked about capital-raising options beyond the branch sale, Levan said that "all things are possible in banking." As for BankAtlantic's capital position, he said management is waiting on new capital ratio requirements from the Federal Reserve.

"When those requirements are provided to the industry, we have every expectation of meeting them," Levan said.

Wiley said the negative equity position could push BankAtlantic toward making a deal as a more viable option, though he cautioned that the company could also manage to weather the storm on its own or with a private-equity partner. "There's a do-able deal in there, but to get a deal done, you have to have a board willing to face heavily dilution and change."

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