Colonial Bank to take $550M in fed funds
Birmingham Business Journal - by Crystal Jarvis Staff
Colonial BancGroup will receive a $550 million capital infusion from the government.
The Montgomery-based financial giant received preliminary approval to participate in the U.S. Treasury’s Troubled Assets Relief Program, which is a part of the $700 billion bailout package that was approved in October.
In exchange for the capital, the Treasury will own preferred stock in the company that will pay a 5 percent dividend for the first five years.
If the shares are not redeemed by Colonial within five years, the dividend payments will jump to 9 percent. The U.S. Treasury will also receive warrants to purchase shares of Colonial BancGroup common stock for 10 years.
The capital injection will increase the bank’s tier I capital ratio – which measures a bank’s capital levels – to 12.98 percent, up from 10 percent at the end of the third quarter. Federal regulators require a minimum of 6 percent to be considered well capitalized.
“The $550 million in new capital 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,” said Colonial CEO Bobby E. Lowder.
Colonial BancGroup operates 26 branches the Birmingham-Hoover metro area.
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