Colonial Bank Fails, Acquired by BB&T

MONTGOMERY, Ala. (TheStreet) -- Colonial Bank was shut down late Friday, the fifth largest bank to fail in U.S. history and the largest financial institution closed by regulators since Washington Mutual last fall.

The Alabama Banking Department took over Colonial Bank, a subsidiary of Colonial BancGroup (CNB), and appointed the Federal Deposit Insurance Corp. receiver. The FDIC then sold all of the institution's deposits and branches to BB&T Corp. (BBT).

Colonial's failure came after regulators shut down Dwelling House Savings and Loan Association of Pittsburgh, whose sole branch and all of its deposits were acquired by PNC Financial Services Group (PNC).

Colonial BancGroup shares were halted in trading Friday, after Dow Jones Newswires, citing sources, reported Colonial would be closed later in the day. Colonial is the 74th bank or saving & loan to fail in 2009.

With $25 billion in total assets and 346 branches in Florida, Alabama, Georgia and Texas, Colonial is the largest financial institution to fail since Washington Mutual, which saw most of its deposits and branches acquired by JPMorgan Chase (JPM) in September 2008.

In addition to the deposits and branches, BB&T acquired $22 billion in assets from the failed bank, with the FDIC agreeing to share in losses on $15 billion. The FDIC retained the rest of Colonial's assets for later disposition and estimated the cost to its deposit insurance fund would be $2.8 billion.

Colonial's branches were set to reopen for normal business hours Saturday as branches of BB&T.

The acquisition of Colonial appeared to be an excellent one for BB&T, since the acquired branches established footholds in Texas and Nevada, while instantly making BB&T a major player in Florida and Alabama.