The sharks are circling Colonial BancGroup.
After a failed sale of the Montgomery, Ala., company, a raid by law enforcement and news of a huge quarterly loss in less than a month, there is clearly blood in the water. Regulators are gearing up for action, and other banking companies are eyeing the $25.5 billion-asset Colonial.
Bank of America Corp. won a temporary restraining order Thursday to freeze $1 billion in Colonial assets related to warehouse lending transactions, and rivals such as BB&T Corp. and SunTrust Banks Inc. are said to be interested in buying all or parts of Colonial.
At the center of several scenarios for the company's future is one of its remaining tasty morsels — a profitable branch network in Texas.
Whether BB&T or SunTrust consider them an inviting entry point into the Texas market or an impediment to a deal could determine Colonial's fate.
Either suitor would need to develop a plan for Colonial's retail operation in Texas, where neither BB&T nor SunTrust have branches. With just 18 branches and less than $2 billion in deposits, would an acquirer want to tap precious capital to build on such a tiny beachhead? Would it be better to try and sell?
BB&T, SunTrust and Colonial all declined to comment.
Analysts generally agreed that it makes sense to keep the branches, which have been the last remaining source of profitability within Colonial's five-state retail operations.
But Colonial's network is largely limited to Dallas, Austin and Plano, and at a time when capital is a precious commodity, most analysts suspect any acquirer to pursue a buy-and-hold strategy in Texas.
"You keep the branches but you don't do anything with them right away," said Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co. Inc. "To me, it is like having a really nice car that you occasionally drive. Otherwise you just try and take care of it."
Jefferson Harralson, an analyst at KBW Inc.'s Keefe, Bruyette & Woods, agreed that such a "smallish outpost" represents a longer-term project for a would-be buyer. "You can wait two to three years and then pursue regular acquisitions," he said.
The least likely scenario, but one that still remains a possibility, involves selling the branches. Analysts widely believe that Colonial has tried to sell the network but possible buyers balked at taking loans. That may not be a problem if BB&T, SunTrust, or someone else works out a loss-sharing agreement with the Federal Deposit Insurance Corp., they said.
Signs of possible regulatory intervention mounted this week.
The Alabama State Banking Board held an emergency session Monday, providing no details afterward. It then canceled a planned meeting with Colonial officials two days later. Those events led many outsiders to believe the regulator was drafting a road map to shut the company down.
The FDIC earlier this week forced Colonial to transfer certain obligations from a real estate investment trust unit to the company in a move that analysts said should also make it easier for the regulator to seize and sell the bank. Some analysts believe the endgame could play out as soon as today.
Events have been unfolding at Colonial rapidly since the company reported a $606 million quarterly loss on July 31. The company at that time also said a deal to sell a majority stake in itself to mortgage lender Taylor, Bean & Whitaker Mortgage Corp. fell through and warned that its own existence was in jeopardy. Since then, authorities have raided Florida offices for Colonial and Taylor, Bean, and Colonial disclosed that it is the subject of the criminal investigation into alleged accounting irregularities at its mortgage warehouse division.
Several lawsuits were filed this week as a result of the Colonial relationship with Taylor, Bean.
On Wednesday, Bank of America filed a lawsuit against Colonial in the U.S. District Court in the Southern District of Florida alleging that the bank is holding assets as a custodian for a Taylor, Bean commercial-paper conduit. B of A, as the custodian for the conduit, is representing those who hold the conduit's debt. B of A is seeking more than $1 billion in cash and loans, while asking the court to prevent the bank from selling or disposing of the asset. A spokeswoman for Bank of America said the court granted a temporary restraining order Thursday, freezing the assets.