Colonial BancGroup Inc.'s lengthy radio silence on the status of government funding has left Wall Street wondering about the company's ability to remain independent.
Nearly seven weeks have passed since Colonial said it had received preliminary approval to sell $550 million in preferred stock to the Treasury Department. Since then it has said nothing about the matter, so analysts can only speculate as they await an update Tuesday when Colonial reports its fourth-quarter results.
Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said the Treasury may want Colonial to jump through more hoops — perhaps sell common stock to buffer against future loan losses. If that is the case, Colonial would face a market "virtually closed" to banks, said Jefferson Harralson, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
There are rumors that regulators unsuccessfully sought a buyer for Colonial, which is burdened by heavy exposure to Florida's ailing real estate market, and some analysts said the Montgomery, Ala., company may have complicated things for itself by switching to a state charter last summer, losing the Office of the Comptroller of the Currency as its main regulatory advocate.
It is not uncommon for the Treasury to take its time between preliminary approval and funding. But a number of other companies with credit issues — including First Horizon National Corp. of Memphis, Huntington Bancshares Inc. of Columbus, Ohio, and Synovus Financial Corp. of Columbus, Ga. — all went through the process within a month.
A call to Colonial was not immediately returned and a Treasury spokeswoman said she would not comment on specific institutions or pending applications.
In Colonial's case, receiving Treasury funds could soothe investors who have been selling the stock since a brief rally triggered by the preliminary Treasury approval. The shares are down 35% since the beginning of December.
An infusion of capital also could raise Colonial's Tier 1 capital ratio, which was 10% on Sept. 30, to 12.98%, according to data from SNL Financial LP in Charlottesville, Va. Sarah Moore, Colonial's chief financial officer, defended the company's capital levels during the company's third-quarter conference call, touting "significant capital in excess" of regulatory minimums.
However, Colonial's nonperforming assets are mounting in Florida, where it has nearly 60% of its assets overall.
Colonial's net chargeoffs in the third quarter grew nearly tenfold from a year earlier, to $121.4 million, and nonperforming assets rose 865%, to $677.7 million, leading to a loss of $9 million for the three months.
Colonial has taken several steps to solve its credit problems. Last summer it created a "war room" in Florida where bankers host affluent individuals and real estate investors and take them out to see available properties. In December it hired Sandra Jansky, a former chief credit officer at SunTrust Banks Inc. who is well versed in the Florida market, as its chief credit and risk officer.
But Robert E. Lowder, Colonial's chairman, president, and chief executive officer, has seemed reluctant to sell distressed properties at fire-sale prices. He has often said his background in real estate has helped him navigate the current crisis. In the 1970s he ran a home-building company with his two brothers, who have ties to both Colonial Co., which owns several home builders and insurance agencies, and Colonial Properties Trust, a publicly traded real estate investment trust.
Colonial could face more pressure to lower prices as more foreclosed properties come on to the market. Regions Financial Corp. in Birmingham, Ala., said such concerns prompted it to sell nearly $1 billion in nonperforming assets in the fourth quarter.
"We do think over a period of time you are going to see more properties come on to the marketplace," William Wells, Regions' chief risk officer, said during the company's earnings call last week. "We're continuing our process, but I will tell you it will be impacted by what additional product will be coming to the market."
Analysts said that lower prices could lead to higher chargeoffs at Colonial, which would also chew through capital. The problem is that, whether or not regulators require it to do so, it will have a hard time raising much capital with its stock trading at around $1.70 a share.
KBW's Mr. Harralson said that "all options must be on the table for Colonial and its management team."
But analysts say an outright sale is unlikely in the near term, because few companies, if any, are strong enough and willing to take on such a large and risky integration. One potential buyer, BB&T Corp., summed up that mind-set during a conference call last week.
Kelly S. King, BB&T's chief executive, said the Winston-Salem, N.C., company is not eager to take on risky assets without considerable government assistance. "We're not interested in increasing the risk in our balance sheet," he said.
Christopher Marinac, an analyst at FIG Partners LLC, said Colonial could shrink its balance sheet and raise additional cash by selling its branches in Texas and Nevada, which have held up well compared with Florida.
"They could also get rid of the Atlanta assets," Mr. Marinac said in an interview. "It's not a worthless cause; it really could change things for them."
Colonial's Texas bank, which has 18 branches and assets of $1.73 billion, earned $8.7 million in the third quarter. The company earned $3.1 million in the third quarter in Nevada, where it has 20 branches and assets of $1.07 billion. Its Florida operations lost $46.2 million in the third quarter.
"Does it make sense to sell those branches?" Mr. Fitzsimmons asked, referring to the ones in Texas and Nevada. "They would have to be in dire straits to do that, because it would mean selling them at a fraction of what they paid for them. The question is have they hit that wall yet? They have kept people sitting on the edge of their seat."
Mr. Fitzsimmons and other analysts said they hope there will be less uncertainty once Colonial releases its fourth-quarter report. "Capital will definitely be the focus of the call, rather than the pure results," he said.