Earlier today, Colonial BancGroup (NYSE: CNB) fell nearly 12% to 41 cents per share before trading was halted pending a news announcement. As it turns out, the troubled bank is being taken into receivership by the Federal Deposit Insurance Corp. (FDIC), while BB&T Corporation (NYSE: BBT) will acquire all of CNB's branches and deposits.
The announcement comes on the heels of a report in The Wall Street Journal (subscription required) that a federal judge has granted a temporary restraining order to freeze $1 billion of Colonial BancGroup's assets. The decision comes after Bank of America (NYSE: BAC) filed suit against CNB, seeking to protect its rights as trustee to $1 billion of loans received from Freddie Mac (NYSE: FRE). U.S. District Judge Adalberto Jordan ruled in Bank of America's favor, citing his concern that Colonial "is on the brink of collapse."
In his ruling, Jordan stated that Bank of America "has met its burden in this case," and added that any sale of the assets by Colonial "would amount to a billion-dollar bank heist."
Back on July 31, CNB warned of "substantial doubt about [its] ability to continue as a going concern." The Alabama-based bank holding company's problems have only deepened in the weeks since. The firm's mortgage warehouse lending division was raided by federal investigators earlier this month, and now it's facing a criminal probe by the U.S. Department of Justice regarding accounting irregularities.
Today's acquisition announcement confirms a prediction made earlier this week by Fox-Pitt analyst Albert Savastano. He suggested on Monday that BB&T could snap up CNB with the government's assistance.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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