Southern regional bank Colonial BancGroup, on verge of failure according to judge, could see rival grab its branches and deposits.
NEW YORK (CNNMoney.com) -- Troubled Colonial BancGroup appeared to be on the verge of failure Friday as a federal judge ordered a freeze of its assets and a wire service reported that its deposits and branches are to be purchased by rival BB&T.
With about $25 billion in assets, Colonial is 100 times larger than the typical bank to have failed this year.
Financial wire service Dow Jones reported that BB&T will buy Colonial's deposits and branches, but not the loans and other financial assets it holds. Terms were not known.
Colonial spokeswoman Mary Tolbert had no comment on the report, nor did BB&T spokeswoman Cynthia Williams or FDIC spokesman David Barr.
BB&T, based in Winston-Salem, N.C., is also a regional banking power, with 1,500 branches across the Southeast. It is also a major mortgage lender.
Most customers of Colonial should not be affected by the closing. The Federal Deposit Insurance Corp., the federal agency that has protected bank deposits since the Great Depression, will guarantee account balances up to $250,000.
Trust fund hit: Still, the failure of Colonial will be another blow to the FDIC trust fund, which has had to cover 72 bank failures so far in 2009.
The fund took a $35.1 billion hit in 2008, and and additional $4.3 billion decline in the first quarter of this year, leaving it with assets of only $13 billion as of March 31. But most of last year's decline was due to $25 billion the agency has set aside to cover future losses.
Little more than a year ago, bank failures were relatively rare, with only four occuring in the first six months of last year. The collapse of IndyMac, a major mortgage lender, in July that year, signaled a rash of failures to follow. IndyMac cost the agency about $10 billion by itself, and is the most expensive failure in history.
It is now a rare Friday night that the agency does not seize the assets of a newly failed bank. And the number of banks judged as troubled have soared to 305 as of March 31, up from only 90 a year earlier. Those 305 problem banks on the FDIC's confidential list have combined assets of $220 billion.
The trust fund that covers the deposits is paid by banks, and the weaker banks have seen those premiums rise about 14% in the last year. The agency has also announced a special one-time assessment on bank assets that will raise $5.6 billion for the fund this September. But those funds will be money that the banks will not be lend out to businesses and consumers in hopes of reviving the economy.
Judge's ruling: The possible sale comes the day after U.S. District Judge Adalberto Jordan ruled Thursday in favor of Bank of America (BAC, Fortune 500), which had requested a temporary restraining order to keep Colonial from liquidating or transferring assets worth $1 billion.
"Viewing Colonial's contractual breach in conjunction with the fact that Colonial is on the brink of collapse and is suspected of criminal accounting irregularities, the potential for immediate substantial injury to Bank of America is clear," the judge said in his order.
Colonial is a major mortgage warehouse lender. and the lawsuit filed by Bank of America involved more than 6,000 mortgages issued by its subsidiary and held in trust by Colonial. According to the motion, Bank of America is owed more than $1 billion in assets, but Colonial has failed to pay the amount owed.
Last month, the bank said in a statement that it had "substantial doubt about Colonial's ability to continue" due to uncertainties about its ability to increase its capital levels.
Shares of Colonial (CNB), which have fallen 80% in 2009, were not trading Friday. But shares of BB&T (BBT, Fortune 500) gained nearly 8% on the report of the acquisition.
