Colonial, gone … Did FDIC tip its hand?

Aug 14, 2009 16:45 UTC

FDIC will seize Colonial and sell its assets to BB&T.  This is the largest bank failure since WaMu last fall.  Reuters:

The Federal Deposit Insurance Corp is taking Colonial BancGroup Inc into receivership and will sell the struggling lender’s branches and deposits to BB&T Corp, Dow Jones said, citing a person familiar with the situation.The deal was approved by the FDIC on Thursday night and is expected to be announced later on Friday, the news agency reported.

Colonial, based in Montgomery, Alabama, operates 355 branches in Florida, Alabama, Georgia, Nevada and Texas and has over $25 billion in assets.

WaMu had $307 billion of assets when it was shut down.  The largest bank failure since then had been BankUnited, with $12.8 billion of assets.

FDIC pulled a move with Colonial earlier this week that was eerily reminiscent of a similar move made with WaMu the week it was seized.  Those of us who thought Colonial would outlast other banks like Corus and Guaranty, should have realized this move foreshadowed a much quicker seizure.  Oops.

Here are the specifics from that filing earlier this week:

Colonial Bank … a wholly owned subsidiary of The Colonial BancGroup, Inc. … received notice on August 10, 2009 from … FDIC … directing  … a … subsidiary of the Bank, to exchange all outstanding shares of its … REIT Preferred Stock for an equal amount of Fixed-to-Floating Rate Perpetual Non-cumulative Preferred Stock, Series A of BancGroup … due to the occurrence of an “Exchange Event.”

What does that mean in English?  Reader frog said the following when I asked him about it on Wednesday:

My reaction is that its bad news for Colonial’s shareholders and debt holders.  Shifting the debt from having any claim, direct or indirect, on the BANK to having claim only on the HOLDING COMPANY makes it much easier for the FDIC to pluck away the Bank and leave the HC with nothing but debt.  The fact that the FDIC itself is tapping Colonial on the shoulder and saying, “Hey, how about you move this stuff over there so it doesn’t get in my way later” would not make me happy if I have any stake in the company.

In future I will blog such tidbits with more alacrity…

COMMENT

I question your use of “failed banks” description of what has been going on by the FDIC vis a vis your reference to WMI, Inc. the bank holding company of Washington Mutual Bank(WMB). WMI, Inc. had a $4.1B cash deposit(the turn over) and $17B in capitol infusion with WMB when it was seized and sold to JPMorgan for $1.88B. How do you like that-JPM take 21B of WMI,Inc. money for 1.9B of your money- Fair trade from your point of view I suppose when you refer to it as a “failed bank”. Have you done your reporting investigative due diligence? Do you know that there is a Fradulant Conveyance law suit
filed against the FDIC by WMI, Inc. in washiongton DC federal court? Do you know that several insurance companies holding equity ownership in WMI, Inc. have filed a law suit against JPMorgan for collusion in the destruction of WMB? Do you know that Judge Walrath issued an order for discovery ineffect ordering JPMorgan in a subpoena to produce records of events leading to the seizure of WMB? The records were due Aug 1, 2009?
Do you know that the WMI, Inc. lawyers have made mention of a global settlement discussions with the FDIC and JPM in there latest billing for their services?
The least you can do is admit that there is a lot about WMB seizure you don’t know? Don’t go around calling yourself an investigative reporter unless you do a thorough due diligence and report the facts. I hope your next blog will show that you are a good investigative reporter when you report Washington Mutual was far from a “failed bank” when it was seized. The question for you is Why then it was seized and sold for a fraction of its value?

Posted by Jack Matalka | Report as abusive

Why the death of a lender matters

Aug 6, 2009 01:54 UTC

Earlier this evening, Reuters’ Jon Stempel reported that Taylor, Bean & Whitaker has ceased lending.  That makes TBW #351 on the Mortgage Lender Implode-o-Meter.  Questions swirl about what happened.  One possibility seems to be that the company just couldn’t manage its own growth.  As other lenders disappeared and TBW’s FHA business exploded, it’s possible they just didn’t have sufficient internal controls to insure loans met FHA underwriting standards.  When the company failed to file its annual financials with the government, things started to unravel.

It’s not clear how problems at Colonial Bank may have impacted the situation.  TBW was basically dependent on Colonial for all its funding.  The company tried to buy Colonial, injecting $300m of capital in order to make the latter eligible for $550m of TARP funds.  That would have kept the gravy train going.  But the deal fell apart late last week when Colonial reported dismal results while issuing a going concern warning.

Why should you care?  Because TBW is pretty big.  It was the third largest originator of FHA mortgages in the market.  Recently the company was doing $100m-$150m of loans a day, according to a source.  It takes time for loan applications to be approved and funded.  45-60 days I’m told.

If TBW was doing, say, 500 home loans a day, as many as 30,000 transactions may be imperiled by the company’s failure.  A lot of paperwork will have to be re-filed, new appraisals will have to be ordered, etc.  The housing market won’t fall apart by any means, but this will certainly cause a fair amount of indigestion.  And a lot of mortgage brokers that were dependent on TBW to purchase the loans they originated are now in deep trouble.

BofA could be a big winner here.  Apparently they’re going to end up taking on TBW’s serving duties.

COMMENT

I begged TB&W to sell my mortgage because their escrow division is /was so horrible. I was without insurance on a rental property for EIGHT months and they told no one. The money was in the account they just didn’t pay the bill on time so the ins. co cancelled the policy. The risk to me was incredible! Any company that is run like that shouldn’t to be in business. Good riddence to them!!

Posted by Ron Otis | Report as abusive
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