As the sixth-largest bank failure in U.S. history, Alabama's Colonial Bank should have been smooth and secretive. Colonial was seized by regulators Friday and sold to North Carolina's BB&T.
Instead, Colonial's demise was a public rubbernecking spectacle — and not the way the banking industry should be managed in these difficult economic times.
This is not your average bank failure. With more than $25 billion in assets, Colonial was the nation's 10th-biggest bank and 100 times the size of the typical bank to have failed this year.
Colonial's downfall was slow torture. The bank, based in Montgomery, Ala., jumped into Florida a decade ago or so, eager to grow faster. It did, but when this recession hit, it found itself bloated with bad real estate loans that eventually forced its failure.
When Colonial needed fresh capital this year, it turned, oddly, to an Ocala mortgage company called Taylor, Bean & Whitaker. The deal withered. Eleven days ago, Taylor Bean shut its doors amid federal claims of fraud. Colonial, too, was raided by the feds in Orlando as part of a federal fraud investigation.
Alabama bank regulators "asked" Colonial in a public document for its permission to be seized and handed to the Federal Deposit Insurance Corp. It was a bizarre action all but assuring the public in advance that Colonial would soon be toast. A judge then froze Colonial's accounts, saying the bank was "on the brink of collapse."
By Friday morning, trading in Colonial's stock was halted as news reports, citing unnamed sources, said BB&T would buy Colonial after it fell into FDIC hands. Throughout the day, both banks and the FDIC refused comment.
The FDIC finally announced the deal just after 6 p.m.
This would make a good case study at business schools in how not to handle a major bank failure.
Poor Colonial. It was death by a thousand blunders.
When Colonial entered Florida, it grew by buying such area institutions as Pinellas Community Bank and Manufacturers Bank of Florida.
Come Monday morning, BB&T opens its network of Florida branches, greatly increased by the addition of nearly 200 Colonial offices. Statewide, BB&T will triple its deposits to about $15 billion.
In the Tampa Bay area alone, BB&T will double it branches to about 50.
Overall, the Colonial deal elevates BB&T to the nation's eighth-largest bank.
The good news is the failure of Colonial rids the banking industry of one of the bigger banks on its most endangered list. But other large institutions display signs of distress.
More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, Bloomberg News reports. That's a bad-loan level regulators say can wipe out a bank's equity and threaten its survival.
Among the more prominent banks in Florida on this list:
• Synovus Bank of Georgia, which serves Tampa Bay out of St. Petersburg.
• Corus Bankshares of Chicago, notable for its reputation for financing Florida condos. Just last week, Corus repossessed Lansbrook Village, a 774-unit condominium complex in north Pinellas County, for failing to pay $75 million in debts. Corus — like Colonial before it — says it expects to be closed.
• Marshall & Ilsley of Wisconsin made a brief splash in downtown Tampa by putting its "M&I" name atop a tower at 501 E Kennedy Blvd.
Let me stress that Friday's fate of Colonial Bank — seized and sold — is not necessarily the fate of any of these three. Though Corus seems resigned to its own demise, Synovus and M&I say they have been selling off pieces of their bad loans to shrink their troubled assets.
What happens ahead to any of these 150 banks laden with bad loans will depend a lot on how long the economy takes to rebound. It won't be easy. Florida's real estate market remains especially troubled.
For Colonial Bank, the end came rapidly — perhaps faster than the feds wanted. But for buyer BB&T, it means buying low and aiming higher.
Robert Trigaux can be reached at email@example.com.