THIS marks the spot where it is not safe to keep your cash in the bank. How many banks are going to cascade into closure? many. get your cash out, at least in a safe deposit box.
BB&T Said to Be Taking Colonial in FDIC-Brokered Deal (Update1)
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By David Mildenberg
Aug. 14 (Bloomberg) -- BB&T Corp. is taking over Colonial BancGroup Inc., the Alabama lender whose collapse would mark the biggest U.S. bank failure this year, a person familiar with the matter said.
Colonial, Alabama’s second-largest bank, will be turned over to BB&T in a deal brokered by the Federal Deposit Insurance Corp. as soon as today, said the person, who declined to be identified because the agreement wasn’t public. Montgomery-based Colonial is being shuttered by regulators after an expansion into Florida saddled the lender with more than $1.7 billion in soured real-estate loans.
“This deal absolutely gives BB&T a market they sorely need to be in,” said Bob Patten, an analyst at Morgan Keegan & Co. who met with BB&T Chief Executive Officer Kelly King this week. “They would only buy under an ironclad loss-protection agreement. They don’t want to take any risks in this portfolio.”
The takeover would make BB&T the ninth-biggest U.S. bank by assets, moving it from 11th ahead of Capital One Financial Corp. and SunTrust Banks Inc. Regulators are closing banks at the fastest pace in 17 years amid mounting losses on real-estate loans in the worst economic crisis since the Great Depression.
“The FDIC does not comment on open institutions,” agency spokesman David Barr said in an e-mail. BB&T doesn’t comment on rumors, spokeswoman AC McGraw said. A call to Colonial spokeswoman Merrie Tolbert wasn’t immediately returned.
BB&T gained $1.71, or 6.6 percent, to $27.51 at 1:25 p.m. in New York Stock Exchange composite trading. The shares have declined less than 1 percent this year, compared with a gain of 2.1 percent for the 24-company KBW Bank Index.
Minimal Risk
BB&T may gain $830 million, or $1.28 per share, in the third quarter from the acquisition, analyst Chris Marinac of FIG Partners LLC in Atlanta said in a report today that assumes the FDIC will absorb 80 percent of Colonial’s loan losses. BB&T is likely to mark down Colonial’s loans by 12.5 percent to account for likely losses, Marinac said.
“The combination of gaining a valuable deposit franchise and being protected against losses on your assets can make these deals very attractive to an acquiring bank,” said John Douglas, a lawyer at Davis Polk & Wardwell LLP in Washington.
Loss-Sharing
The FDIC is offering to share losses with buyers of failed banks, reviving a practice used during the U.S. savings-and-loan crisis in the late 1980s.
The agency’s insurance fund fell to $13 billion as of March 31 and is likely to suffer a “big hit” from Colonial’s failure, Patten said. Colonial’s loan portfolio was “junk in the trunk that nobody wants to touch,” he said.
Colonial posted a $606 million second-quarter loss, its fifth straight deficit, mostly because of soured loans to developers and home builders in Florida. A planned $300 million injection by an investor group collapsed and the bank hasn’t met capital requirements to qualify for money from TARP, the $700 billion U.S. bailout program for financial firms.
The lender said last month there was “substantial doubt” it could survive and on Aug. 7 said its warehouse mortgage- lending business is the target of a U.S. criminal probe. The Securities and Exchange Commission issued subpoenas for documents related to accounting for loan loss reserves and participation in the Troubled Asset Relief Program, the bank said.
Colonial was founded in 1981 in Montgomery by former CEO Bobby Lowder, who oversaw acquisitions in Florida, Georgia, Nevada and Texas, where economic growth outpaced Alabama. Lowder stepped down in January after failing to raise capital as required by regulators.
BB&T, the North Carolina lender that bought back a $3.1 billion stake from the U.S. government, declined 10 percent in the past year before today, compared with a 30 percent fall in the 24-member KBW Bank Index. Colonial had declined 94 percent.
To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net
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