“Stocks have their worst loss in more than a month after an unexpectedly low reading from the University of Michigan. Wall Street Journal says BB&T has reached an agreement to buy the deposits and branches of Colonial Bancorps.”– CNBC’s Power Lunch 8/14/2009
BB&T (NYSE:BBT) a regional bank with operations primarily in the southeastern U.S. swooped in this morning to take over deposits and branches from Colonial BancGroup. Colonial, also a southeast regional, has been seized by regulators today in the largest bank failure of 2009. Montgomery, Alabama based Colonial Bank announced a week ago, that their was “substantial doubt” over the banks ability to survive as they were unable to meet capital requirements necessary to receive TARP funding. In addition, their mortgage lending unit has come under investigation from the U.S. Department of Justice. As of their latest reporting, Colonial had about $25 billion in assets, but has been crushed by the credit crisis, particularly in their presence in the troubled Florida market.
The FDIC’s seizure of Colonial Bank should not come as a surprise as their had been significant doubts of their survival even before the warnings on August 7th. Back in January, Colonial sustained a significant blow when their Chairman and Founder Bobby Lowder was forced to resign after failing to raise capital as required by regulators. The market is cheering the move by BB&T though, as the stock is up more than 9% in midday trading, while the rest of the market is down significantly. BB&T, who was among the first banks to pay back the TARP funds, will acquire Colonial’s assets, branch locations, and offices. In so doing, BB&T will strengthen their presence in the southeast and particularly Alabama.
This seems to make sense for BB&T, as they continue to grow as a regional powerhouse. When we last blogged about BB&T about a month ago (Is BB&T Worth the Price?), we revealed that BB&T is one a very select group of banks that we are still positive on. We have maintained that Undervalued stance through today, and this acquisition does little to change that opinion. However, after today’s run up we are starting to see the price come up to levels that we think are justified by the bank’s fundamentals. With today’s actions BB&T has just expanded its deposit base and presence, which will be a boon to business as the economy recovers. We remain cautious on banks that have a lot of exposure to real estate, and particularly commercial real estate, as does BB&T. So, as for right now, we are going to consider downgrading BB&T to a neutral view as the price has become less attractive. That being said, the bank was able to acquire a large slice of the southeastern market, probably for a serious discount.