Yesterday I noted that no potential acquirers were likely to take a flyer on Colonial Bancgroup. Today come reports that BB&T will buy Colonial after the FDIC seizes it. Yikes! Well, you can't hit one out of the park every time, and I feel marginally better for having predicted the end was near (although that was evident).
The FDIC will reportedly announce the deal today. If the stories are true, North Carolina-based BB&T appears to be gambling that the opportunity to expand in the Southeast, particularly in Alabama and Florida, are worth the risk of taking on Colonial. Plus, the price will be right -- Colonial has no leverage with which to negotiate, given that it's under criminal investigation by the feds and faces financial, legal and regulatory challenges, while banking regulators will be eager to see a deal go through.
BB&T is emerging from the banking crisis better than many of its peers and ready to bolster its position as a regional banking power. The company in July repaid $67 million it had borrowed from the government's TARP program. It has a diverse revenue mix and has shown strong recent growth in commercial loans and mortgage banking.
The $152 billion-asset company also has a good record of managing risk, and its Tier 1 ratio of 8.4% mean it's better prepared than most banks to withstand further deterioration in its loans. The company is also rewarding shareholders, sporting a return on equity for the last 12 months of 10.1 percent, versus the industry average of 3.8 percent.
As for absorbing $27 billion-asset Colonial, which would be by far BB&T's biggest acquisition, mergers are by definition risky. But BB&T was built on deals. Since 1994, the company has purchased roughly 40 community banks and thrifts, more than 30 non-bank financial service companies and many insurance agencies. It knows M&A.
That should see BB&T through the usual merger integration issues. Unless I'm wrong.