A number of media outlets have been reporting that BB&T will be taking over the assets of Colonial BancGroup, citing sources familiar with the situation.
Evidently the bank will be seized some time on Friday by bank regulators, which will make it the largest bank failure this year, and the fifth-largest in U.S. banking history.
A couple of weeks ago Colonial announced a second-quarter loss of $606 million, and said that it was doubtful if they could continue operations without a new infusion of capital from an outside source.
The recent lawsuit filed by Bank of America to protect its claims on about $1 billion in loans obtained by Colonial because of Bank of America’s role as trustee, has moved forward as a federal judge in Miami allowed a temporary restraining order against the $1 billion in assets, effectively freezing them for now, citing Colonial “is on the brink of collapse.”
Concerning his ruling the judge communicated that Bank of America “has met its burden in this case. And to the extent that the interests of the public are implicated in this case, they weigh in favor of requiring Colonial to honor its contractual obligations and avoiding what would amount to a billion-dollar bank heist.”
As a result Colonial can’t sell or move its assets in any way.
So as far as BB&T taking over Colonial, it would be in connection with their branches and deposits at this time, and not the loans and other financial assets it holds.
To put this all into perspective, the failure of Colonial BancGroup is somewhere around one hundred times larger than the nearest bank in size to fail in 2009.
While there is no way at this time to know what it will cost, some estimates come in at between $5 billion to $7 billion, which is a huge portion of what’s left in the FDIC fund.
For the most part Colonial’s customers shouldn’t be affected by the takeover, as balances of up to $250,000 will be guaranteed by the FDIC.
