Corus, Colonial on the Brink
Colonial's Confusing Communications
The federal raid at Colonial comes as the company faces scrutiny for its litany of confusing announcements related to its application for government bailout funds.
According to published reports, federal agents from the Federal Bureau of Investigation, Treasury Department and Department of Housing and Urban Development were seen carying boxes from Colonial's office. The office of the TARP Inspector General would only confirm that agents served a search warrant in Orlando and at one other Florida location, according to WESH News in Orlando. According to Ocala.com, federal agents also raided the offices of Taylor, Bean & Whitaker Mortgage, which in March had agreed to invest $300 million in Colonial.
Colonial BancGroup had total assets of $25 billion as of June 30 and operates 352 branches in Florida, Alabama, Georgia, Nevada and Texas. The company announced a second-quarter net loss of $606 million, or $3.02 per common share. This left the company's main subsidiary, Colonial Bank, adequately capitalized with a Tier 1 leverage ratio of 4.18% and a total risk-based capital ratio of 9.21%.Colonial has a major residential lending operation, with $12.4 billion in first mortgage originations in 2008. Colonial is operating under a cease and desist order with the Fed, FDIC and State of Alabama. An earlier memorandum of understanding between the holding company and FDIC and state regulators required Colonial Bank to achieve and maintain respective Tier 1 leverage and total risk-based capital ratios of at least 8% and 12% by March 31. These ratios normally need to be at least 5% and 10% for a bank to be considered well-capitalized. Colonial made several attempts to raise capital, publicized in several ill-advised announcements made by the company. For starters, Colonial said on Dec. 2 in a Securities and Exchange Commission filing that the Treasury had approved its application to receive a capital infusion of $553 million via the Troubled Asset Relief Program, or TARP. Not until Jan. 27 did Colonial share an important feature of its "approval" for TARP money -- the company was first required to raise $300 million in new capital from other sources. Then on March 31, Colonial announced a deal with wholesale mortgage lender Taylor, Bean & Whitaker to raise $300 million. The company didn't actually receive any money that day, since the investor group wouldn't fork over the money until receiving confirmation from Colonial that the TARP money would be received.
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