Corus Bankshares Inc. (fka CORSQ)

[Redlegs]

This looks like a path we could be headed for...



By Patrick Fitzgerald
Of DOW JONES DAILY BANKRUPTCY REVIEW


The former holding company for Colonial Bank, which was seized by federal
regulators last year, is suing the Federal Deposit Insurance Corp. over the
rights to millions of dollars in disputed assets.

In a lawsuit filed Thursday evening, bank holding company Colonial BancGroup
Inc. (CBCGQ) sued the FDIC, the bank's receiver, over the rights to a number of
assets--including tax refunds, proceeds from insurance policies and other
property--that it says belong to the bankruptcy estate. The FDIC, which sold
Colonial's assets to BB&T Corp. (BBT), claims it has dibs on the assets.

The restructuring professionals overseeing Colonial BancGroup's Chapter 11
case are asking Judge Dwight H. Williams Jr. of the U.S. Bankruptcy Court in
Montgomery, Ala., to decide whether the assets are property of the bankruptcy
estate.

The FDIC was named receiver of Colonial Bank after regulators seized the
Montgomery bank in the summer of 2009. Colonial, which had $25 billion in
assets and $20 billion in deposits, was the biggest bank failure of last year.

Colonial BancGroup is also asking Williams to deny the FDIC's claims,
including fraudulent transfers, filed against the holding company.

In court papers, the holding company denied that any such fraudulent
transfers occurred.

"To the contrary," lawyers for the estate said, "Colonial Bank was the
recipient of numerous transfers of property...that constitute fraudulent or
otherwise avoidable transfers."

At issue are assets that the parent company said it transferred to the bank
while it was insolvent. Such transfers, which could be worth hundreds of
millions of dollars, can sometimes be unwound under bankruptcy law.

Among those transfers, lawyers for the parent said in court papers, is a $166
million tax refund the holding company received in June 2009. "All or a
substantial part" of that went to Colonial Bank to shore up the bank's capital.

The holding company said it pumped some $121.5 million in cash and loan
receivables into the bank. It also loaned $120.6 million to an affiliate to
acquire a portfolio of subprime loans from the bank, loans that have "proven to
be substantially uncollectable," according to court papers.

Colonial BancGroup and the FDIC declined to comment.

Under bankruptcy law, creditors can file lawsuits seeking to recoup payments
a troubled company made in the months immediately before it filed for
bankruptcy. Such lawsuits are common in Chapter 11 cases, as they often
represent unsecured creditors' best shot at recovering what they're owed by a
company in bankruptcy.

But in a recent bankruptcy-court filing, lawyers for the FDIC pointed to
Colonial BancGroup's creditors committee as the force behind a "massive
litigation 'support' effort."

The FDIC said that even if the committee succeeds in reclassifying the
agency's claims to nonpriority unsecured claims, it wouldn't provide much
benefit to unsecured creditors but would simply increase such claims to $1.25
billion from $350 million "for what may be a negligible amount of
distributions."

The Alabama State Banking Department pulled Colonial Bank's charter, and the
FDIC sold most of the assets to BB&T, which also took over all of Colonial
Bank's deposits. Parent company Colonial BancGroup filed for bankruptcy
protection 11 days later.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and
those under bankruptcy protection.)

-By Patrick Fitzgerald, Dow Jones Daily Bankruptcy Review; 202-862-3544;
[e-mail]


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03-08-10 1435ET

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