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Robert Trigaux

Regulators: 27 days left to fix Colonial Bank

4

March

Colonialbankchart_2 Wake up and good morning. While bank regulators are putting renewed heat on Alabama's Colonial BancGroup, whose Colonial Bank offices are scattered across Florida and the Tampa Bay market, the troubled banking company is reportedly reaching out to southern regional banks with a For Sale sign.

After writing a St. Petersburg Times column last month about troubled Colonial, readers emailed me saying as Colonial customers they had asked their bank branches about the concerns expressed in the column. The typical Colonial response: "The newspaper just decided to pick on us."

That column "picked" on Colonial, a $27 billion banking company in Montgomery, Ala. for a good reason. At that time, the bank company's stock had faded to an astonishingly low 59 cents per share. When a company's stock gets that low, there's little cushion left between 59 cents and zilch.

So what's happened to Colonial since then?  First, its stock is down again, by a third, closing Tuesday at 37 cents a share. And -- finally -- it's been disclosed that Colonial BancGroup is now operating under a "memorandum of understanding" with regulators as it tries to raise capital or find a buyer. According to an SEC filing this week, Colonial has an informal agreement with Alabama state bank regulators, the Federal Deposit Insurance Corp. (which insures Colonial deposits) and the Federal Reserve Bank of Atlanta (which regulates bank holding companies).

Robertlowdercolonialbank_2 The goal? To shore up its balance sheets by the end of the first quarter of 2009. That gives Colonial just 27 days. And counting. What then? "Formal" regulatory orders or, possibly, seizure and a federally arranged sale to another banking company. Colonial CEO Robert Lowder is clearly on the hot seat to pull off a miracle.

As reported in the Birmingham Business Journal, the bank has more than 50 percent of its real estate assets in the troubled Florida market. It posted a fourth quarter net loss of $880 million and divulged that it must raise $300 million before it can cash in on the $553 million capital infusion of TARP (Troubled Asset Relief Program) funds being dangled out there by the U.S. Treasury Department.

Context: Plenty of other big banks have seen their stock prices drop. I mean, Citigroup is trading at a remarkable $1.22 and Bank of America is at $3.65. But aside from Colonial, none of the bigger interstate banking companies operating in Florida have stock prices under a dollar, much less under 50 cents.

Colonial has indicated in the past that a private equity firm, SunTx Capital Partners in Dallas, is considering a 24.9 percent stake. And the Wall Street Journal (subscription required), citing an unnamed source, says the bank "is talking to three other potential investors."

The Journal also reports Colonial also has reached out to larger Southeastern rivals -- including Atlanta-based SunTrust Banks Inc., Birmingham, Ala.-based Regions Financial Corp. and Winston-Salem, N.C.-based BB&T Corp. -- to ask about an acquisition. It's doubtful any of these three are looking to buy in such difficult times without extraordinary federal guarantees.

In the meantime, law firms smell blood because, they claim, Colonial deceived investors by failing to say it would receive federal TARP funds only if it first raised $300 million on its own. Like ants at a picnic, class action lawsuits are being launched by more than a dozen law firms from Donaldson Guin and Coughlin Stoia to Faruqi & Faruqi and Brower Piven.

That will get ugly. But what really strikes me is Colonial BancGroup, despite its go-for-the-gusto plunge into Florida years ago which has put it among the Top 5 in the state, has absolutely nobody on its board of directors from Florida. Go figure.

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 12:24pm]

    

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