Regulators are expected to seize Los Angeles-based California National Bank on Friday in what would be the fourth-largest U.S. bank failure this year, the Los Angeles Times reported, citing unnamed sources.

The Wall Street Journal reported this month that Minneapolis-based U.S. Bancorp was eyeing an acquisition of Cal National's parent, FBOP Corp: a private group with more than $18 billion in assets that owns eight banks in Texas, Illinois, Arizona and California.

The Federal Deposit Insurance Corp, which oversees U.S. banks and safeguards deposits, and U.S. Bancorp officials could not be reached for comment.

U.S. Bancorp is expected to take over Cal National with no losses to depositors, and its branches should re-open as normal Saturday or Monday rebranded U.S. Bank, the newspaper cited people familiar with the matter as saying.

U.S. Bancorp, which has been buying up distressed assets this year, is conducting due diligence now on FBOP and its other banks, the Journal has reported.

A bank official who answered the main number at Cal National's headquarters said they could not talk at the time.

Bank failures in 2009 are at their highest level since 1992, with over 100 banks collapsing. The largest institution to fail in the current financial crisis is Washington Mutual, which boasted assets of $307 billion when it was shuttered in September 2008.

More lenders are expected to go under this year as the industry tries to get a handle on commercial real estate loans that will continue to worsen, as more strip malls go vacant and residential developments stall.

Cal National operates 68 branches across Southern California with more than $7 billion in assets. As of June 30, the lender maintained five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier, according to the Los Angeles Times.

It lost about $500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, the newspaper added, referring to securities rendered nearly worthless by the government takeover of the mortgage firms last year.

U.S. Bancorp has bought Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those thrifts failed last November, the newspaper said. This month, U.S. Bancorp bought 20 Nevada branches from BB&T Corp., which had acquired them as part of its deal to buy Colonial BancGroup Inc.

(Reporting by Edwin Chan and Mary Milliken; Editing Bernard Orr)

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