Colonial Agrees To Cease-and-Desist Order

Colonial BancGroup Inc. on Monday said it has agreed to a cease-and-desist order with federal and state regulators who are seeking to ensure the struggling bank holding company has adequate capital.

The announcement, which sent shares of Colonial BancGroup down 18 percent, came as the company awaits closure of two pending transactions it hopes will shore up its finances.

Montgomery-based Colonial said it consented to an order by the Federal Reserve's Board of Governors and the Alabama State Banking Department that took effect July 22.

Among other things, the order requires Colonial to obtain written consent from regulators before declaring or paying any dividends to shareholders, or before making interest or principal payments on subordinated debt or trust-preferred securities.

Within 30 days of the order's effective date, Colonial also must submit regulators a plan on how it expects to achieve and maintain a sufficient capital cushion.

Shares of Colonial fell 13 cents to 59 cents, near the bottom of the stock's 52-week range of 29 cents to $10.50.

In March, Colonial said investors led by Taylor, Bean & Whitaker Mortgage Co. agreed to make a $300 million equity investment in the bank, just in time for Colonial to meet a deadline to qualify for $550 million in federal bailout funds. In Monday's news release, Colonial said one of the factors that could hurt its financial situation includes the possibility that it could fail to close that pending agreement.

Colonial is also trying to close another pending agreement with Global Consumer Acquisition Corp., which on July 14 announced plans to buy 21 Colonial Bank branches in Nevada. Financial terms of that deal were not disclosed. It's expected to close in the third quarter.

In December 2008, Colonial said it received preliminary approval to receive funds under the Treasury's Troubled Asset Relief Program, or TARP, in which the government buys preferred stock in U.S. banks in hopes that they will resume more normal lending. A condition of that deal was that Colonial would raise $300 million from private investors.