Colonial BancGroup Shut by Regulators

Regulators on Friday shut down Colonial BancGroup Inc., a big lender in real estate development that buckled under the collapse of the market. It was the biggest U.S. bank to fail this year, with about $25 billion in assets.

Alabama banking regulators closed Montgomery, Ala.-based Colonial and appointed the Federal Deposit Insurance Corp. as receiver. The federal agency approved the sale of Colonial's $20 billion in deposits and about $22 billion of its assets to BB&T Corp. The failed bank's 346 branches in Alabama, Florida, Georgia, Nevada and Texas will reopen at the normal times starting on Saturday as offices of BB&T, the FDIC said.

Colonial was a major lender to developers in Florida and Nevada and was hit hard by the collapse of the real estate market in those states. It was the sixth-largest bank to fail in U.S. history.

While losses on home mortgages may be leveling off, delinquencies on commercial real estate loans remain a hot spot of potential trouble, experts say. Many regional banks like Colonial hold large numbers of them.

BB&T, based in Winston-Salem, N.C., operates throughout the Southeast and is considered among the nation's stronger regional banks. BB&T said the deal, the biggest acquisition in its history, creates the nation's eighth-largest financial holding company by deposits.

The move "represents an exciting growth opportunity for BB&T," company CEO Kelly King said in a statement.

In addition, the FDIC and BB&T signed an agreement to share losses on about $15 billion of Colonial's loans and other assets.

Colonial said early this month there was "substantial doubt" it would be able to continue as a going business, following five straight quarterly losses. In addition to its financial woes, the company has been the subject of federal criminal and civil investigations over alleged accounting irregularities and other issues.

Colonial's failure is expected to cost the deposit insurance fund — which is financed by assessments on U.S. banks — an estimated $2.8 billion. Colonial was roughly twice the size of BankUnited FSB, a Florida thrift closed in May with $13 billion in assets, though the expected hit to the insurance fund from Colonial is less than that bank's estimated $4.9 billion impact.