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Published: August 16, 2009
BB&T Corp. has a well-earned reputation as a conservative, methodical financial institution.
But bank officials showed last week that they know how to seize an opportunity with its whirlwind takeover of a collapsing Colonial BancGroup Inc.
Less than a week after being approached by the Federal Deposit Insurance Corp. to bid on Colonial, BB&T emerged as the winner of the bank's $20 billion in deposits.
Once it got the FDIC's approval late Thursday night, BB&T set into motion at least 425 employees -- enough to put a company face at each of Colonial's 354 branches in five states by the time the FDIC approval was announced at 6 p.m. Friday.
"It was a logistics nightmare, but they did a wonderful job mobilizing those employees quickly once we got the final word," said Daryl Bible, the chief financial officer of BB&T.
"We've got a lot of people who have gotten by on two hours of sleep for several nights. They're out there educating the Colonial people and their customers about BB&T to get a start on doing the best integration we've ever had," Bible said.
The deal is by far the biggest ever for BB&T. It is expected to move to ninth from 12th in U.S. market share for total assets.
Combining the banks' deposits, BB&T becomes the No. 4 bank in Alabama -- having just a token presence before -- and No. 5 in Florida after being 17th. It also tightens its grip on No. 4 in Georgia and gains branches in Nevada and Texas.
There is likely to be little local work-force impact from the takeover, although the bank will send local employees to some branches for an extended stay to bring them up to BB&T sales and policy standards.
The FDIC and BB&T said that the bank will buy about $22 billion of Colonial's assets, with the FDIC retaining the remaining $3 billion in assets for later disposition. The agency entered into a loss-share transaction with BB&T on about $15 billion of Colonial Bank's assets.
Bible said that BB&T already had "an institutional knowledge" of Colonial from competing against it in Georgia and Florida.
But it used the time from the FDIC's heads-up to conduct its own due diligence of the bank.
"While the whole process went quickly once we got the call from the government, the price that we paid for this transaction is a price we felt very comfortable in agreeing to," Bible said. "We understand it was a very competitive process, and the difference between first and second was very close."
When asked about how BB&T will reassure shareholders and employees about taking over Colonial -- especially when it already reduced its dividend from 47 cents to 15 cents in May to save capital -- Bible said that "this is a very low-risk transaction for us."
"We are taking very minimal asset risk on this deal with the government's lost-share arrangement.
"Strategically, it is a very good fit for us all the way around. This deal gives us the huge depth and breadth to be able to operate our community-banking model and large commercial and corporate banking in Florida, and gets us into Alabama in size and stature."
Bible said that BB&T expects to take at least 12 months to complete the system conversion of the Colonial branches and at least 24 months to integrate BB&T's corporate culture, particularly in sales.
Kelly King, the chief executive of BB&T, said that the bank would create community-bank regions in Birmingham and Montgomery, as well as two in Florida.
Bible said he doesn't know how many of Colonial's more than 4,500 employees will be affected by the merger. BB&T has been focused on cutting costs for several years, including eliminating vacant and filled jobs locally in recent months.
"We'll get to know them, what they are good at," Bible said.
Bob Riley, the governor of Alabama, told The Montgomery Advertiser that he was concerned about the possible loss of 1,000 headquarters jobs there. "Colonial has been a mainstay for Montgomery," Riley said. "We have a lot of people who depend on it."
Michael Rose, an analyst with Raymond James Securities, said that there are just 40 of Colonial's 355 branches within a mile of a BB&T branch, which could contribute to lower employee turnover at the branch level than in typical bank deals. BB&T's largest deal came in 2003 when it spent $3.4 billion to buy First Virginia Banks Inc.
That deal, along with several smaller deals at the time, caused BB&T so much integration "indigestion," according to John Allison, its chairman and former chief executive, that it entered a bank-buying moratorium for 2½ years and has bought just four since then.
"Cultural changes can be a major issue for an acquiring bank," said Bart Narter, an analyst at Celent, a financial-research and consulting company based in Boston.
"Depending on how BB&T takes over, and it typically has a learn-or-leave approach, you could see an us vs. them attitude develop among some Colonial employees.
"On the other hand, BB&T is trying to reduce its risk and expenses as much as possible."
Bible said that BB&T will take its time deciding whether to keep Colonial's 22 branches each in Nevada and Texas or sell them to help reduce the cost of the takeover.
Tony Plath, a finance professor at UNC Charlotte, predicts that those branches will be sold in the next month to another bank with a Western geographic footprint.
Bible said that the bank would be "open-minded" about the troubled warehouse financing division of Colonial that contributed significantly to its collapse. Warehouse financing is secured by a company's balance sheet assets, such as inventory, receivables, or collateral other than real estate.
"We aren't going to stray from our conservative underwriting culture," Bible said. "We're going to review their mortgage warehouse lending business, understand it.
"If we like the business, and we think the risk-return is acceptable, we'll stay in the business. If we don't think it fits within our structure, we'll exit the business."
Plath said he expects BB&T will exit warehouse lending as "too much risk for BB&T's culture."
Plath said he expects that the Colonial customer turnover -- typically about 10 percent in a major bank deal -- will be "quite low, at least a first."
"Anyone that's hung in with the bank until now is probably a really committed customer, since most of the people who don't have a solid reason to stay with the bank have already headed for the exits," Plath said. "For all Colonial's troubles, I think they do a good job at serving retail customers in their branch network."
Arnold Danielson, the chairman of Danielson Associates of Bethesda, Md., said that the deal strengthens BB&T's stature in the Southeast because it is likely that either Regions Financial Corp. or SunTrust Banks Inc. will eventually be bought by JPMorgan Chase & Co.
"That would leave BB&T as the primary local bank in the South, or at a minimum, sharing that role with SunTrust," Danielson said. "Combine this with the Wachovia sale to Wells Fargo, BB&T looks to be coming out of the recession much stronger than when it went in."
BB&T has a loss-sharing agreement and Wachovia didn't with Golden West. What we need are jobs. Most cities with a bank the size of BB&T have a few thousand bank jobs in new skyscrapers downtown and other employers moving to the city, to work with the bank. If this merger can bring new jobs and downtown investment to Winston-Salem, I welcome it. A company like BB&T could transform this city, by growing and creating jobs downtown, as they grow into new markets. Look at Charlotte and Raleigh, where one or two companies create hundreds or thousands of jobs downtown and the city is transformed. I would like to see BB&T keep the Texas branches. Texas is fast growing and weathering the recession better than most places. It's the center of the nation's energy industry and a good place to expand a bank into.
AI
