Regulators Approve UnionFed Financial Recapitalization Plan : Banking: A successful public stock offering could prevent seizure of the troubled thrift, which has branches in Orange and Los Angeles counties.

Federal regulators have approved UnionFed Financial Corp.’s plan to boost capital levels, the thrift announced Monday.

The plan calls for a public stock offering of as much as $45 million that, if successful, could keep regulators from seizing the troubled thrift, which has 18 branches in Orange and Los Angeles counties.

The Office of Thrift Supervision approved the Brea holding company’s recapitalization plan on Friday and removed a cease-and-desist order requiring Union Federal Savings Bank to review its internal lending practices, UnionFed said in a statement.

UnionFed received notice June 3 from federal regulators that they considered the thrift to be critically undercapitalized because its capital--the final reserve against losses--fell below 2% of its loans and other assets.

Under new federal laws, regulators must take prompt corrective action against financial institutions when capital ratios fall below 2%. Regulators usually give institutions a 90-day notice, which can be extended, to come up with a plan to boost capital. If a company fails to do so, it faces a government takeover.

Under UnionFed’s plan, the thrift will increase its capital ratio to 4% by Sept. 23, sell some branches, and reduce non-performing loans and general expenses, the company said in a press release. Company officials would not comment further.

A banking industry analyst said Monday that for the OTS to remove a cease-and-desist order before an institution increases its capital level is not typical.

“It’s very unusual for regulators to remove the C&D; before the stock offering has been successfully completed,” said Sal Serrantino, president of California Research Corp., a bank consulting company based in Santa Monica. “Possibly they are just very confident.”

To raise capital, UnionFed filed a registration statement Friday with the Securities and Exchange Commission to sell as much as $45 million worth of common stock.

David S. Engelman, UnionFed’s chairman, said in a statement that federal approval of the plan confirms “the progress we are making in strengthening operations and reducing non-performing assets” of the thrift subsidiary, which is based in Los Angeles. Operating under federal restrictions, the S&L; lost $20.7 million for the first nine months of its current fiscal year and has seen its assets shrink from $2.5 billion at the end of December, 1990, to $1.2 billion at the end of March this year.

In Monday’s NASDAQ trading, UnionFed’s stock closed at 37.5 cents a share, up 9.38 cents.