Another chapter in "How to Make Money on the Governments Dime" has now been written. BB&T's (BBT) acquisition of Colonial Bank (CNB) is complete and the House of Bair ("HOB") has ensured success and a healthy return.
The deal:
- BB&T acquires $21.8 billion of Colonial Bank assets,
- FDIC eats 80% of the first $5 billion in losses,
- FDIC eats 95% of losses between $5 and $14.3 billion.
The assets acquired by BB&T without loss share:
- $3.5 billion in cash and non-credit related assets;
- $2.5 billion in government securities (credit risk is debatable);
- $1.3 billion in non-agency securities - purchased at bid side;
- $200 million consumer loan portfolio purchased at a discount.
The book was marked down 37%, non-loss share transactions were done with 9-13% mark-downs. Nice.
The bottom line, while I am told "credit markets are healing", the FDIC is willing to pay a high price to keep assets off its books and act as a broker in failed bank trades. I think BB&T put it best:
FDIC loss sharing substantially eliminates credit risk from legacy assets.
Sweet deal. The government once again showing their adept handling of this financial quagmire.
Disclosure: Long BB&T and CNB preferreds.
