Colonial Bank: The Cycle Is Complete

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Includes: BBT, CNB
by: Rubicon Associates

Well, as I predicted in my Aug 13, 2009 post "CNB - FDIC Preps the Patient", Colonial Bank (CNB) was taken into receivership and passed to BB&T (NYSE:BBT). From the house of Bair press release:

Colonial Bank, Montgomery, Alabama, was closed today by the Alabama State Banking Department, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Branch Banking and Trust (BB&T), Winston-Salem, North Carolina, to assume all of the deposits of Colonial Bank.

As of June 30, 2009, Colonial Bank had total assets of $25 billion and total deposits of approximately $20 billion. BB&T will purchase approximately $22 billion in assets of Colonial Bank. The FDIC will retain the remaining assets for later disposition.

The FDIC and BB&T entered into a loss-share transaction on approximately $15 billion of Colonial Bank's assets. BB&T will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement is also expected to minimize the disruptions for loan customers.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $2.8 billion. BB&T's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives.

BB&T is purchasing $22 billion of the assets and getting a loss share on $15 billion? Quite the deal. As of this writing, the loss share agreement has not been made public (where is the transparency?), but I can't wait to see the deal that was made.

Similarly, if a public company transferred assets a day before it filed for bankruptcy it would be called a fraudulent conveyance of assets. The regulators moved assets from the mortgage reit to the bank by transferring the associated liabilities (preferreds) to the holding company - just fewer claims against the FDIC and the assets. Looking out for taxpayers I guess.

Disclosure: Long CNB Mortgage REIT preferreds.