Downey Financial Seeking New Capital

Downey Financial Corp., which operates the state’s fourth-largest thrift, said it is looking for ways to raise additional capital to fund growth.

The Newport Beach holding company for Downey Savings & Loan said it has formed a committee, led by board director Michael Abrahams, to “explore alternate avenues,” but the statement did not say whether officials are considering selling an equity stake in the company.

Officials were not available for comment Wednesday.

Analysts said Downey may be trying to boost its capital level in anticipation of tighter regulatory standards being considered for financial institutions that lend to borrowers with poor credit.

Last year, Downey moved aggressively into so-called sub-prime lending, saying it expected the niche to account for nearly 20% of total residential loans.

But federal regulators are worried about the risks of such loans, which have led to financial problems at several U.S. financial institutions. As a result, institutions that make sub-prime loans may soon be forced to set aside higher capital levels than those making conventional loans.

Earlier this week, the thrift said it has agreed to sell its auto finance unit to California Federal Bank for an undisclosed price.