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Colonial Bancgroup hits hard times

Colonial Bancgroup, an Alabama bank prominent in the Tampa Bay area, skirted disaster when a privately owned Ocala mortgage banking company agreed to invest $300 million in the struggling regional bank.

The deal revealed late Tuesday briefly bolstered Colonial's battered stock Wednesday and, at the least, bought the bank more time.

Federal and state regulators had given Colonial until Tuesday to find more capital or face dire consequences, including a possible forced sale. Unless it raised $300 million this week, Colonial also wouldn't have qualified for $550 million in federal bailout or TARP funds.

But the $26 billion institution, the fifth biggest bank in Florida, isn't out of the woods yet.

Moody's Investors Service downgraded Colonial on Wednesday, citing a threat that the pact with Ocala's Taylor, Bean & Whitaker Mortgage Co. won't be consummated. Without a substantial injection of capital, there is "significant risk" of Colonial being undercapitalized, Moody's said.

And even if the deal is finalized, some bank analysts were concerned the added funds wouldn't be enough to help Colonial weather this downturn.

"With the amount of loan losses Colonial reported in 2008 and continued deterioration in the real estate market and general economy, it is unlikely this TARP capital and Taylor, Bean-led investment would ensure the company would remain well-capitalized," SunTrust Robinson Humphrey analyst Jennifer Demba wrote to clients Wednesday.

In a release, Colonial said that with the investment "it is anticipated that Colonial will continue to operate as a stand-alone publicly-traded company with an independent board of directors and management team."

Taylor Bean, whose chairman is Lee Farkas, is hardly a household name even though it is headquartered just north of the Tampa Bay area. It describes itself as one of the "top ten" national wholesale mortgage lenders. It is also a savings and loan holding company regulated by the Office of Thrift Supervision through its ownership of Platinum Community Bancshares, the parent of Platinum Community Bank, a federal savings bank headquartered in Rolling Meadows, Ill.

Birmingham-based Colonial was part of an army of Alabama banks, such as Regions, AmSouth and SouthTrust, that built up sizable deposits in Florida's borders during the 1990s.

Like its Georgia brethren, Colonial tapped into Florida's burgeoning real estate market as it grew into the fifth largest bank in the state with nearly 3 percent of all deposits. Out of 340 branches in five states, more than half are in Florida, including 30 in the Tampa Bay area.

But it was that very exposure to Florida's real estate collapse which pushed Colonial into the red last year, losing $880.5 million.

For Colonial, Taylor Bean's rescue comes at a steep cost. First, Taylor Bean immediately becomes Colonial's 75 percent majority owner, which means the Alabama bank is now effectively controlled out of Ocala. Second, Colonial will drop its bank charter and instead become a thrift holding company. And third, Taylor Bean gets five seats on Colonial's 15-member board and will have a say on five other board members, in collaboration with Colonial.

Colonial has 30 days to find a better deal. If it finds one, it has to pay a $10 million termination fee to the investors.

A year ago, Colonial shares were trading for $14 apiece. After dropping to an alarming 29 cents in early March, shares have rebounded slightly. Colonial's stock closed Wednesday at $1.05, up 15 cents or 17 percent.

Information from Times wires was used in this report.

Colonial Bancgroup hits hard times 04/01/09 [Last modified: Wednesday, April 1, 2009 9:22pm]
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