BB&T Takes Over Colonial Bank

The BB&T Corporation of North Carolina took over the branches and deposits of Colonial BancGroup on Friday evening, averting a major financial collapse with a government-assisted deal that could cost the federal deposit insurance fund billions of dollars.

The takeover agreement, announced by the Federal Deposit Insurance Corporation, marks the largest bank failure of 2009 and could be the most costly since the sudden failure of IndyMac Bancorp last year, The New York Times’s Eric Dash reports.

The takeover was announced just hours after federal regulators closed Dwelling House, a tiny Pittsburgh-based savings bank, and it brings the total number of bank failures to 74 this year. Banking analysts expect the number could easily reach several hundred in the next 18 months as rising commercial real estate losses take their toll.

Colonial Bank, based in Montgomery, Ala., had been embattled for months as its financial condition deteriorated and relationships with regulators worsened. Even worse, the bank’s attempt to secure federal bailout money turned up unspecified accounting irregularities that have prompted a criminal investigation. For weeks, many in the industry speculated its failure was imminent.

Alabama state regulators officially closed Colonial on Friday evening.

For BB&T, the takeover deal will help extend its presence in the Southeast and into Texas, a fast-growing region that has held up better than other hot housing markets because of its exposure to the oil and commodities trade. It will take control of Colonial’s 346 branches and $20 billion of deposits in Alabama, Florida, Georgia, Nevada and Texas, giving it a total of over 1,800 locations.

Colonial depositors will automatically become BB&T customers, and will continue to be covered by the federal deposit insurance limits.

As of the end of June, Colonial Bank had a total of about $25 billion of assets. BB&T will purchase about $22 billion worth of Colonial’s assets, with the remaining $3 billion falling on the F.D.I.C. to sell to private investors.

The F.D.I.C. and BB&T also entered into an unspecified loss-sharing agreement on approximately $15 billion of Colonial Bank’s assets, which the government said was meant to minimize the cost to taxpayers. Federal regulators have increasing offered similar arrangements to lure prospective buyers in a number of other recent bank failure deals.

The New York Times’s Floyd Norris examined on his High and Low Finance blog how BB&T deemed that only 28 percent of Colonial’s assets were worth taking on without any F.D.I.C. protection.

“Today, after protecting almost $300 billion in deposits since the current financial crisis began, the F.D.I.C.’s guarantee is as certain as ever,” Sheila C. Bair, the F.D.I.C. chairwoman, said in a statement. “Our industry funded reserves have covered all losses to date. In fact, losses from today’s failures are lower than had been projected.”

BB&T’s shares have risen more than 36 percent in the last month, including a 9 percent gain on Friday after reports of its expected takeover of Colonial first emerged.

Colonial BancGroup’s founder, Robert E. Lowder, started with the acquisition of a small bank in Alabama in 1981 and moved into rapidly growing areas like Florida and Nevada, eventually making 68 acquisitions over the years.

The bank rode the wave of this decade’s housing boom, especially in Florida, where it had most of its business. In the last two years, even as housing prices began to slip, Colonial kept buying Florida banks at a premium. Its share price, above $25 in 2007, had dipped below $4 by mid-2008.

Colonial moved from state regulation to federal in 2003, as deregulation gained favor in Washington. But in June 2008, it switched back to being regulated by the Alabama state banking department.

In August, the Alabama attorney general announced an investigation of trading in Colonial stock, and hired Harvey Pitt as a special deputy attorney general to lead the inquiry. No charges were ever filed.

In December, as the bank’s stock continued to decline, the Treasury Department agreed to invest more than $500 million in the bank, but only if Colonial could raise $300 million in capital from another source.

In March, Colonial said investors led by the Taylor, Bean & Whitaker Mortgage Corporation had agreed to put up $300 million for a 75 percent stake in the bank, but the agreement fell apart late last month.

The bank’s attempt to obtain a federal bailout has prompted a criminal investigation. After a raid requested by the inspector general for the government’s Troubled Asset Relief Program, Colonial said it was being investigated on suspicion of accounting fraud. Last week, federal agents, acting at the request of the special inspector general for TARP, raided the offices of both Taylor Bean and Colonial, carting off boxes of documents.

Mr. Lowder, 67, stepped down as Colonial’s chairman and chief executive in June. A few days later, regulators issued a cease-and-desist order demanding that the bank increase its capital and reduce its bad loans.

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