Tarp Funds Aside, Capital Remains Issue at Colonial

Article excerpt

Byline: Katie Kuehner-Hebert

Colonial BancGroup Inc. defied some expectations this week when it said it had secured preliminary approval for funds from the federal bailout program.

Still, analysts question whether the capital is enough to ensure independence for the Montgomery, Ala., company, which is dealing with mounting credit deterioration in its home builder portfolio. Also this week, Colonial parted company with its chief credit officer, though it would not provide a reason.

Those hoping for more clarity on these issues were disappointed when the $26 billion-asset company canceled a scheduled appearance at a conference Thursday afternoon.

After weeks of speculation about its ability to secure money, Colonial had said Tuesday that it had received approval to sell $550 million of preferred stock to the Treasury Department through the Troubled Asset Relief Program. The company said the money would boost its Tier 1 leverage ratio to 9.46% and its total risk-based capital ratio to 17.16%. (As of Sept. 30 its Tier 1 leverage ratio was 7.29%, and its total risk-based capital ratio was 14.18%.)

When the approval was announced, Robert Lowder, Colonial's chief executive, said in a press release, the funds "will enhance our capital cushion and will allow Colonial Bank to meet our customers' financing needs with additional lending activity throughout our five-state footprint." A Colonial spokeswoman on Thursday declined to comment beyond the company's statement Tuesday.

Colonial's shares had soared 54% that day, to $3.08, but Adam Barkstrom, an analyst at Sterne, Agee & Leach Inc., said that even if Colonial used the government funds to help clean up its balance sheet, its tangible equity ratio - 5.3% at Sept. 30 - would likely drop further. "Tarp bought them a little more time, but Tarp just doesn't fix its tangible equity problem," Mr. …