Colonial BancGroup shut by regulators

[RideTheDirt]

WASHINGTON (AP) -- Regulators on Friday shut down Colonial BancGroup Inc., 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.

http://finance.yahoo.com/news/Coloni...29410.html?x=0

The failure of Colonial is expected to cost the deposit insurance fund an estimated $2.8 billion.

So, can the FDIC cover this one, or will they need a bailout?

[Dr.3D]

Wow!

[ramallamamama]

I guess the feds had to go in and make sure the documents were shredded.

August 4, 2009

Agents Raid Bank and Lender in Florida
By DAMIEN CAVE and JAMES GLANZ

http://www.nytimes.com/2009/08/04/bu...gewanted=print

MIAMI — Agents with the F.B.I. and the Treasury Department’s Troubled Asset Relief Program raided a bank and a wholesale mortgage lender in Florida on Monday after the collapse of a proposed partnership that could have brought them more than $500 million in federal bailout money.

Christopher Sharpley, deputy special inspector general for the Treasury program, would not comment on why the bank, the Colonial BancGroup, Florida’s sixth-largest bank, and the mortgage lender, Taylor, Bean & Whitaker, based in Ocala, Fla., were being investigated.

Standing outside the offices of Colonial Bank in downtown Orlando — where witnesses said about 50 agents appeared around 9:30 a.m. — Mr. Sharpley said only that search warrants were being executed.

But the inquiry appears to reveal the largest case by far being investigated by the bailout inspector general, given that about $550 million in bailout money is involved. In previous cases made public by the inspector general’s office or its partners in investigating cases of malfeasance involving the bailout, the figures have been substantially lower. In one case earlier this year, a man in Tennessee, Gordon Grigg, pleaded guilty to embezzling $11 million in his clients’ investment funds.

Calls to Taylor, Bean & Whitaker were not returned. Merrie Tolbert, a spokeswoman for Colonial, which is based in Montgomery, Ala., but has more than a third of its assets in Florida, said the company had received a search warrant and was cooperating and staying open, with “business as usual.”

Banking experts said the investigation seemed related to an arrangement set up by the Treasury Department that required Colonial to obtain at least $300 million in private investment before being granted a bailout. The goal, regulators said, was to raise the bank’s risk-based capital ratio to 12 percent by Sept. 30, to offset losses from loans tied mainly to real estate in Florida.

In April, the company announced that Taylor, Bean & Whitaker, with other investors, would provide the $300 million infusion. But on Friday, Colonial reported in its quarterly report that the deal was mutually terminated because regulatory approval could not be obtained.

Stanley D. Smith, a finance professor at the University of Central Florida in Orlando, said that Colonial was one of several southeastern banks that came into Florida during the building boom, only to regret it later. As of June 31, some 88 percent of Colonial’s loans were in real estate, Mr. Smith said, a high value that helps explain the bank’s losses.

As of last month, it had more than $1 billion in nonperforming assets, out of total assets of $26 billion. In the last quarter alone, the company, which has 4,500 employees, lost $606 million.

Taylor, Bean and Whitaker has had its own troubles. In June, the company paid $9 million to settle with 14 states over questionable underwriting practices.

But the viability of Colonial may be a more urgent concern. Mr. Smith said it was likely that Taylor, Bean & Whitaker agreed to the investment on the condition that Colonial would be healthy with the new financing; the Treasury Department has maintained the same standard with its own cash infusions. This suggests that neither side believes that the bank can survive.

Even bank officials no longer seem sure of the company’s future. Because of uncertainties about its ability to increase its capital levels, the company quarterly report said Friday, “management has concluded that there is substantial doubt about Colonial’s ability to continue as a going concern.”

For now, employees are trying to carry on. In Orlando, they answered phones inside a shimmering high-rise tower as federal agents carried dozens of boxes of documents out into the rain.

Damien Cave reported from Miami and James Glanz from New York. Amy Green contributed reporting from Orlando.