BB&T Corp., which took over Colonial Bank after it was seized by regulators, is now asking one of those authorities, the Federal Deposit Insurance Corp., to protect it from a $300 million suit brought by creditors of the Alabama bank's former parent, Colonial BancGroup Inc.
In papers filed with the U.S. Bankruptcy Court in Birmingham, Ala., BB&T said the terms of its agreement to purchase much of Colonial's assets from the FDIC, the bank's receiver, called for the regulator to indemnify BB&T from lawsuits connected to the purchase.
BB&T is now asking the bankruptcy court to ensure the FDIC lives up to that alleged promise as the Winston Salem, N.C., bank prepares to defend itself in a lawsuit related to ownership of a Florida real-estate investment trust.
"While BB&T denies any liability" to Colonial BancGroup Inc. creditors, the FDIC is "liable to BB&T for any liability that BB&T may incur in this action, including the costs of defense," BB&T said in court papers filed last week.
As part of its acquisition of Colonial's assets in August 2009, BB&T paid $300 million to buy the preferred stock of CBG Florida REIT Corp., an indirect subsidiary of both Colonial Bank and the bank's former parent.
Colonial BancGroup creditors say that stock was the property of the former holding company and not the failed bank and therefore should not have been seized and sold.
For its part, BB&T says it would not have paid $300 million for that stock if it "had known or had any suggestion" that the trust's preferred stock was "not owned by the failed bank and thus could not have been conveyed by FDIC-Receiver."
BB&T said it relied on the terms of the purchase materials the FDIC presented, including the indemnification clause, in making its decision.
A spokesman for the FDIC could not immediately respond when reached Wednesday.
The lawsuit at issue involves the potentially valuable ownership of the CBG Florida REIT.
Colonial BancGroup creditors, who have few other sources for recovery, want the shares returned or, alternatively, are seeking $300 million from BB&T as a fraudulent transfer under federal and Alabama law. Bankruptcy law allows a debtor in Chapter 11 to unwind so-called fraudulent transactions within two years of a bankruptcy filing if they provided no benefit to the business and the debtor was insolvent at the time the transfer occurred.
The REIT securities were issued in 2007, and proceeds from the sale were used to buy a Florida bank holding company called Commercial Bankshares Inc.
The fight between Colonial BancGroup creditors and BB&T is essentially a sideshow to a series of larger legal disputes between the bankruptcy estate and the FDIC. Colonial BancGroup has sued the FDIC over the rights to a number of assets--including tax refunds, proceeds from insurance policies and other property--that it says belong to the bankruptcy estate. The FDIC continues to assert that it is the holder of such assets.
The FDIC was named receiver of Colonial Bank after regulators seized the Montgomery bank in the summer of 2009. Colonial, which had $25 billion in assets and $20 billion in deposits, was the biggest bank failure of that year.