Less than two weeks after Federal Deposit Insurance Corporation (FDIC) seized Colonial BancGroup’s (CBCG) banking operations, the holding company filed for Chapter 11 bankruptcy protection yesterday. Most of Colonial’s banking assets were sold to BB&T Corp. (BBT).
The shutdown of Colonial BancGroup’s banking operations is the biggest bank failure so far this year, and the sixth-largest in U.S. history.
The estimated cost of Colonial BancGroup’s failure to the deposit insurance fund would be $2.8 billion. The FDIC and BB&T have signed an agreement to share losses on about $15 billion of Colonial BancGroup’s loans and other assets.
BB&T expects losses in the loan portfolio acquired from Colonial BancGroup’s banking operations of $5 billion will not have a negative impact on its earnings because of its loss-sharing agreement with the FDIC.
For the last several quarters the holding company posted losses as a result of its write-down of millions in residential construction and mortgage loans related to the impacted markets in Florida.
According to the filing, Colonial BancGroup had $45 million of assets and $380 million of debts as of August 14.
A planned $300 million outside investment from Taylor, Bean & Whitaker Mortgage Corp. could have supported its capital base. But Taylor itself filed for bankruptcy protection on Monday due to recent actions taken against it by the Department of Housing and Urban Development, and mortgage financiers Freddie Mac (FRE) and the Government National Mortgage Association (Ginnie Mae).
In the first half of 2009, bankruptcy protection filing increased 64% year over year to more than 30,000. Also, according to the American Bankruptcy Institute, the number of Chapter 11 business reorganizations increased 113% year over year to 7,396, and Chapter 7 business liquidations jumped 57% year over year to 20,375. Continued financial stress on both consumers and businesses due to the market turmoil was the reason for increase in bankruptcy filings this year.
Read the full analyst report on “CBCG”
Read the full analyst report on “BBT”
Read the full analyst report on “FRE”
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