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UPDATE 1-Colonial BancGroup says unit gets cease & desist order
06.09.09, 06:22 PM EDT
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* Says banking unit gets cease & desist order

* Shares down 21 pct in post market trade

June 9 (Reuters) - Struggling lender Colonial BancGroup Inc said its banking unit has agreed to a cease and desist order with regulators requiring the bank to increase capital levels and reduce problem assets among other things.

The order, signed with the Federal Deposit Insurance Corp (FDIC) and the Alabama State Banking Department, also provides for on-going management and oversight of the bank and improvement of earnings, Colonial said.

'We are committed to working with the FDIC and State of Alabama to implement the actions required by the Order. We will do so while continuing to meet the needs of our customers in the communities we serve,' the company said in a statement.

The bank had entered into an informal memorandum of understanding (MoU) with regulators late last year to boost its capital ratios earlier in the year.

On March 31, Colonial said investors led by Taylor, Bean & Whitaker Mortgage Co agreed to invest $300 million in the company.

The order does not affect customer deposit accounts or loans, the company said.

Shares of the Montgomery, Alabama-based company were trading down 21 percent at $0.95 after the bell. They closed at $1.21 in regular session on the New York Stock Exchange.

(Reporting by Sweta Singh in Bangalore, Editing by Dinesh Nair) Keywords: COLONIALBANCGROUP/

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