Corus, Colonial on the Brink

(Includes information about published reports of federal raids at Colonial Bankshares locations.)

JUPITER, Fla. (TheStreet) --One of the costliest bank failures over the past two years looms and another large institution sits on the brink after two holding companies made dire announcements following Friday's market close.

Corus Bankshares (CORS) on Friday filed a preliminary earnings report announcing that main subsidiary Corus Bank NA was technically insolvent, with core capital of negative $157 million.

Federal agents from several agencies on Monday raided the Orlando, Fla., offices of Colonial BancGroup (CNB), according to published reports. The raid comes just three days after company on Friday expressed "substantial doubt" about its ability to "continue as a going concern" in its second-quarter earnings release.

Both holding companies have been exploring strategic opportunities to be acquired, raise capital or sell substantial assets, to no avail. In the current environment, potential acquirers, including bank holding companies and private equity investors, are insisting on government assistance as part of any deal to acquire substantial amounts of distressed loans. The Federal Deposit Insurance Corp. is only willing to share in losses on failed institutions.

Saga of a Condo Lender

Corus Bankshares had $7.1 billion in total assets as of June 30. In its preliminary second-quarter earnings release, the Chicago holding company announced a second-quarter net loss of $487 million, or $9.07 per diluted share, wiping out its capital and making it likely that main subsidiary Corus Bank NA would quickly be shut down by the Office of the Comptroller of the Currency.

Corus has been at the forefront of the boom and bust cycle for condominium construction and conversion lending in hard-hit housing markets, including Florida, Arizona and California.

TheStreet.com was early in highlighting Corus's heavy exposure to a frothy condo market nearly two years ago, saying that the company wouldn't be able to sustain its dividend of 7% at that time. Not only was the regular dividend on common shares high, the company had just paid a special dividend of $1 per share, or $56 million.

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