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…