BB&T buys Colonial bank; 4 other banks fail

Troubled Colonial BancGroup will be bought by rival BB&T Friday, the government said after state regulators closed the bank whose assets had been frozen by a federal judge.

The Montgomery, Ala., bank, which has 346 branches spread across Florida, Alabama, Georgia, Nevada, and Texas, is the sixth largest bank failure in U.S. history and by far the largest failure of 2009.

With $25 billion in assets and $20 billion in deposits, Colonial is 100 times larger than the typical bank to have failed this year.

BB&T (BBT, Fortune 500) will buy $22 billion of Colonial's assets, as well as its deposits and branches, leaving the remaining assets in the hands of the Federal Deposit Insurance Corp.

BB&T, based in Winston-Salem, N.C., is also a regional banking power, with 1,500 branches across the Southeast. It is also a major mortgage lender.

Most customers of Colonial should not be affected by the closing. The FDIC, the federal agency that has protected bank deposits since the Great Depression, will guarantee account balances up to $250,000.

But home buyers and those who want to refinance their mortgages could end up paying somewhat higher rates, even if they have never heard of Colonial, said Guy Cecala, publisher of trade publication Inside Mortgage Finance.

Cecala said Colonial was a significant player in the sector of the business known as "mortgage warehouse" lending, which provides financing needed by mortgage brokers and non-bank lenders to make home loans.

"The more firms like this that get out, the more dependent we get on large banks, and less competition there is. That's never a good thing," he said. Warehouse lending used to be a huge source of funds for home loans, according to Cecala, but the mortgage defaults and declining home prices of recent years has decimated the business.

"The warehouse lending market is now so fragile and so small, it doesn't help when we lose anybody," he said. "We have only a cup of water where we used to have a bucket of water." link.....