Colonial Bank dissolved, marking 2009's biggest bank failure

Colonial Bank, a regional US lending group, was dissolved on Friday, becoming the largest bank failure to date in 2009. The majority of Colonial's 25 billion dollars in assets are to be bought by banking group BB&T Corp.


REUTERS  - Colonial Bank, of Montgomery, Alabama, was shuttered on Friday and its assets sold to southeast regional bank BB&T Corp, marking the largest bank failure this year.

The bank closure—the 74th this year—brings an end to the Alabama lender which has seen its problems mount amid the financial crisis.

The failure of Colonial Bank, which had total assets of $25 billion, is expected to cost the Federal Deposit Insurance Corp’s insurance fund $2.8 billion.

BB&T, Winston-Salem, N.C., will buy about $22 billion of Colonial’s assets, according to the FDIC. The FDIC and BB&T have agreed to share losses on about $15 billion of those assets. The bank had deposits of about $20 billion as of June 30.

Colonial’s holding company Colonial BancGroup Inc said last Friday it faced a criminal probe related to accounting irregularities at its mortgage lending unit.

On Thursday, Bank of America Corp won a temporary restraining order against Colonial when a federal judge in Miami ordered it to freeze $1 billion in assets.

BB&T said it will not buy any of the assets or assume any obligations of Colonial’s holding company, including any relating to, Taylor, Bean and Whitaker Mortgage Corp.

BB&T said that assets and liabilities that the FDIC determines are related to fraudulent or criminal activities also are excluded from the deal.

The acquisition, BB&T’s largest in its 137-year history, creates the eighth largest U.S. financial holding company by deposits, BB&T said.

BB&T shares closed up 9.4 percent on the New York Stock Exchange.

BB&T ended June with $152.4 billion of assets. It operates 1,505 branches in 11 states and Washington, D.C.

In June, BB&T repaid the U.S. government the $3.1 billion it received under the Troubled Asset Relief Program after regulators determined the bank was well capitalized.

Separately, the FDIC also said on Friday PNC Financial Services Group Inc, Pittsburgh, had agreed to assume all deposits of Dwelling House Savings and Loan Association, also in Pittsburgh, which was closed as well.

FDIC Chairman Sheila Bair said in a statement that the losses from Friday’s failures were lower than had been projected.

No immediate panic

Earlier in the day, business appeared to continue as normal at one of Colonial Bank’s main branches in downtown Montgomery, Alabama, even as media reported on the expected closing.

“As long as it doesn’t mess with my money, I’m fine,” said Dawn Williams, a 24-year-old mother of two.

But another customer told Reuters she was worried and wanted to withdraw her money.

“I am freaking out. It doesn’t makes sense to play with people’s money. They work hard for it,” said retired nurse Deborah Burney, 53, who has an account with her husband at the branch.

“I had asked my husband to take the money out of this bank when I heard something on the TV the other night,” she said.

Colonial’s 346 branches in Alabama, Florida, Georgia, Nevada and Texas will reopen as branches of BB&T, the FDIC said. Depositors of Colonial will automatically become depositors of BB&T.

In July, Colonial BancGroup posted a $606 million second-quarter loss, its fifth loss in a row, as higher charge-offs and rising foreclosures in the bank’s Florida construction-loan portfolio continued to strain its balance sheet.

The FDIC said in a statement that Colonial BancGroup was not included in the closing of the bank or the resulting receivership.

BB&T was advised by Credit Suisse, Deutsche Bank and Wachtell, Lipton, Rosen & Katz.

BB&T shares closed up $2.43 at $27.23 on the New York Stock Exchange. They rose to $28.63 in after-hours trading.

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