* Shares lose more than half of value in after-hours trade

* Says banking unit agrees to cease & desist order (Adds background, updates share movement)

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

Shares of Colonial, which is awaiting federal approval for a $300 million capital infusion from a private lender, slumped as much as 59 percent to 50 cents in trading after the bell.

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

Late last year, the bank had entered into an informal memorandum of understanding with regulators 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, a condition for the bank to get government funds.

The cease-and-desist order does not affect customer deposit accounts or loans, the company, which derives most of its income from its banking unit, said.

The bank, with over $26 billion in assets, has seen its stock lose more than 75 percent of its value in the last 12 months as rising foreclosures in its Florida construction-loan portfolio continue to strain its balance sheet.