Regulators on Friday shut down Colonial BancGroup Inc. (CNB, news, msgs), a big lender in real estate development that buckled under the collapse of the market. It was the biggest U.S. bank to fail this year, with about $25 billion in assets.
The Federal Deposit Insurance Corp. was appointed receiver of Montgomery, Ala.-based Colonial. The agency approved the sale of Colonial's $20 billion in deposits and about $22 billion of its assets to BB&T Corp. The failed bank's 346 branches in Alabama, Florida, Georgia, Nevada and Texas will reopen at the normal times starting on Saturday as offices of BB&T, the FDIC said.
BB&T, based in Winston-Salem, N.C., operates throughout the Southeast and is considered among the nation's stronger regional banks.
The failure of Colonial is expected to cost the deposit insurance fund an estimated $2.8 billion.
The bank was a major lender to developers in Florida and Nevada and was hit hard by the collapse of the real estate market in those states.
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Colonial, founded in 1981 by longtime president and CEO Robert E. Lowder, saw its fortunes crumble over the past two years as its stock price plunged from around $25 in 2007 to less than 50 cents this year.
Lowder stepped down in May as new management took control under a plan for a $300 million investment led by Taylor, Bean & Whitaker Mortgage Co. of Ocala, Fla., an investment designed to make Colonial eligible for $550 million in federal bailout funds.
But the deal fell through and federal agents raided the Ocala headquarters of Taylor, Bean & Whitaker.
Colonial said early this month there was "substantial doubt" that it would be able to continue as a going business.
Colonial has been under a criminal investigation by the Justice Department in connection with alleged accounting irregularities at its division in Orlando, Fla., that provides financing for mortgage lenders, and a civil probe by the Securities and Exchange Commission concerning accounting issues and the bid for federal bailout funds.
Alabama banking regulators met with Colonial officials earlier this week. Late last month, they had ordered the company to submit a plan detailing how it would build up its capital reserves. Also this week, Colonial said in a regulatory filing that it wouldn't be able to file a second-quarter financial report because of the alleged accounting problems. The company said it didn't know at this point how much money it lost in the April-June quarter.
Colonial's troubles mounted on Thursday as a federal court in Miami froze $1 billion of its assets in response to a lawsuit filed by Bank of America Corp. The suit said Colonial appeared on the verge of collapsing and an emergency order freezing assets was needed.
The suit alleges that Colonial refused to return funds it had held for Charlotte, N.C.-based Bank of America when a mortgage and loan transaction was terminated.