It's official: BB&T Corp. (BBT) is taking over Colonial Bank, the foundering Montgomery, Ala.-based lender that's been on the brink of collapse for weeks.

Regulators shut down Colonial this evening. With $25 billion in assets and nearly 350 branches in Alabama, Florida, Georgia and Texas, it's the biggest of the 73 banks to fail so far this year.
Recent U.S. Bank Failures
On Aug. 14, regulators closed Montgomery, Ala.-based Colonial Bank and Pittsburgh-based Dwelling House Savings and Loan, bringing the tally of failed banks in 2009 to 73. Drag the map for more information on recent bank failures. Source: FDIC/DailyFinance
"BB&T is probably one of the best-positioned firms in terms of capital, culture and morale," said Morgan Keegan & Co. analyst Bob Patten. "It's a very good deal for them."

Dragged down by souring real estate loans, Colonial posted a $606 million second-quarter loss and hasn't turned a profit in over a year. But BB&T will be insulated from the riskiest assets on Colonial's books, thanks to a deal that will see the Federal Deposit Insurance Corp. absorb losses on $15 billion in toxic loans.

The acquisition "comes with minimal asset risk to BB&T because of our loss sharing agreement with the FDIC," BB&T CEO Kelly King said in a statement. The FDIC guarantee covers "substantially all" of Colonial's loans and securities included in the deal, the company said.

BB&T's stock surged today as the news that the acquisition was imminent began to circulate. It rose 9.4 percent to $28.23, near its high point for the year.

The deal is important for BB&T because it instantly extends the Winston-Salem, N.C.-based bank's reach south and west. Previously without much of a presence in Alabama or Florida, it's now among the top five biggest banks by deposits in each state.

Now that he's eaten Colonial, King faces the challenge of digesting it. Even for a company that enjoys a reputation for smoothly integrating acquisitions, the shear size of the deal is sure to pose challenges. After all, BB&T boosts its total deposits by some 22 percent.

"This company was built on deals," said Anton Schutz, president of Mendon Capital Advisors. An acquisition of Colonial's size will be "transformative," he added. "It should keep BB&T busy for a while."

Collapse has seemed nearly inevitable for Colonial, a subsidiary of Colonial BancGroup (CNB), since it said last month that mounting losses created "substantial doubt" that it could stay in business. Last week it revealed that its warehouse lending business was under federal investigation. The FDIC reportedly decided last night to close it.

Also seized by regulators today was Dwelling House Savings and Loan, a tiny Pittsburgh-based thrift with just $13.4 million in assets, the FDIC said in a statement. It was sold to PNC Financial Services Group (PNC).

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