Colonial BancGroup submits bankruptcy filing

26 August 2009

Colonial BancGroup has filed for Chapter 11 bankruptcy protection after its banking unit was shut down by the government earlier this month.

The real estate lender, which is based in Montgomery, Alabama, listed debts of $380 million in its filings to the US Bankruptcy Court yesterday (Wednesday 25th).

Its assets were valued at $45 million and a creditor list submitted to the authorities revealed that the Bank of New York Trust has an outstanding claim worth $253.7 million.

Colonial BancGroup fell into difficulty after being forced to write off millions of dollars of property loans, with the majority relating to real estate markets in Florida, where it became exposed to foreclosures following the onset of the economic downturn.

According to the Associated Press, the failure of financial services division Colonial Bank - which was subsequently sold to BB&T by the government earlier this month - was the biggest collapse of a US bank in 2009 and the sixth-largest in the country's history. Prior to folding, the firm had posted a loss for several consecutive quarters.

Following the acquisition, BB&T now has 102 offices and $4.7 billion in deposits in the state of Alabama, Bloomberg reports, with the firm intending to reduce Colonial Bank's costs by 30 per cent in order to save around $170 million a year.

A planned $300 million investment from mortgage corporation Taylor, Bean & Whitaker that would have shored up Colonial BancGroup's capital base collapsed last month, with Taylor Bean itself filing for bankruptcy earlier this week.

As well as facing bankruptcy, Colonial BancGroup's mortgage unit is also the subject of an investigation by the US justice department, which is looking into accounting irregularities in its mortgage warehouse unit - used by finance firms to provide homeowner loans to those wanting to purchase real estate.

The business said it is co-operating fully with the investigation, which will see authorities study a year's worth of financial statements.

Written by Gary Cooper

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