Colonial Bancgroup

Last updated
Colonial Bancgroup
TypeHolding company
Industryfinancial services
Founded1974
Headquarters Montgomery, Alabama
Area served
United States

Colonial BancGroup Inc. was a bank holding company headquartered in Montgomery, Alabama, United States that failed in 2009. It was a financial services company that, through its subsidiaries, provided diversified services, including retail and commercial banking, wealth management services, mortgage banking and insurance. The company was in the top 50 largest banks in the US prior to its failure and its subsidiary, Colonial Bank, operated 346 branches in the states of Alabama, Georgia, Florida, Nevada and Texas.

Contents

The company ran into problems after it was revealed that it had bought $1 billion in mortgages from Taylor, Bean & Whitaker that Taylor Bean had forged, in one of the biggest fraud cases in history. [1] On August 25, 2009 it filed for Chapter 11 bankruptcy. [2] The banking assets and branches were sold to BB&T bank under a Federal Deposit Insurance Corporation (FDIC) brokered deal.

History

The Bank was founded in 1974 in Montgomery, Alabama as Southland Bancorporation. The company changed its name to The Colonial BancGroup, Inc. in 1981. [3]

The principal activity of the BancGroup was to supervise and coordinate the business of its subsidiaries, and to provide them with capital and services. The BancGroup derived substantially all of its income from dividends received from Colonial Bank, its banking subsidiary. The BancGroup's subsidiary Colonial Brokerage, Inc. provided full service and discount brokerage services and investment advice. The BancGroup had interests in several residential and commercial real estate developments located in the southeastern United States, as well as two in the central Texas area.

On January 31, 2006, Colonial Bank sold its interest in Goldleaf Technologies, Inc., which provides Internet and automated clearing house services to community banks.

At the end of the fourth quarter of 2008, Colonial Bancgroup had a Texas ratio of 53.4%, up from a figure of 25% in the first quarter of 2008. [4]

Taylor, Bean & Whitaker Mortgage fraud

Between 2004 and 2009 management at Taylor, Bean & Whitaker fraudulently sold $400 million worth of fake mortgages to Colonial with the help of a Colonial bank executive. [5] The fraud scheme was between 2002 and 2009, and involved Catherine Kissick, former senior vice president of Colonial Bank and head of Colonial Bank's Mortgage Warehouse Lending Division, and her co-conspirators, including former Taylor, Bean & Whitaker Chairman Lee Farkas, whereby they defrauded various entities and individuals, including Colonial Bank, Colonial BancGroup, Taylor, Bean & Whitaker, the Troubled Asset Relief Program, and the investing public. [6]

According to court documents, Taylor, Bean & Whitaker began running overdrafts in its master bank account at Colonial Bank. Starting in 2002, Kissick, Farkas and their co-conspirators engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one Taylor, Bean & Whitaker account with excess in another, and later through the fictitious "sales" of mortgage loans to Colonial Bank, a fraud the conspirators dubbed "Plan B." Court records show the conspirators sent mortgage data to Colonial Bank for loans that didn't exist or that Taylor, Bean & Whitaker had already committed or sold to other third-party investors. [6]

Kissick admitted she knew and understood she and her co-conspirators had caused Colonial Bank to pay Taylor, Bean & Whitaker for assets that were worthless to the bank. As a result, false information was entered on Colonial Bank's books and records, giving the appearance that the bank owned interests in legitimate pools of mortgage loans when in fact the pools had no value and could not be securitized or sold. [6]

The fraud caused Colonial BancGroup to file materially false financial data with the SEC regarding its assets in annual reports contained in Forms 10-K and quarterly filings contained in Forms 10-Q. Colonial BancGroup's materially false financial data included overstated assets for mortgage loans that had little to no value. [7]

The fraud in total would cost Colonial over $1.9 billion. [5]

Disclosure and failure

Colonial disclosed its legal problems on August 4, 2009, stating that federal agents had executed a search warrant at its mortgage warehouse lending offices in Orlando, Fla. and that it had been forced to sign a cease and desist order with the Federal Reserve and regulators at the end of last month in relation to its accounting practices and its recognition of losses. [8] [9] On August 14 it was announced that BB&T would buy Colonial's branches and deposits in a deal with the FDIC. [10]

This was the biggest bank failure of 2009. [11] On August 25 Colonial BancGroup filed for Chapter 11 bankruptcy. [12] The bankruptcy case's name is "In re Colonial BancGroup Inc, U.S. Bankruptcy Court, Middle District of Alabama (Montgomery), No. 09-32303". [13]

PricewaterhouseCoopers lawsuit

The bankruptcy trustee for Taylor, Bean & Whitaker Mortgage Corp., once one of the nation’s biggest privately held mortgage companies, is suing PricewaterhouseCoopers as the auditor of Colonial Bank, seeking $5.5 billion in damages. The trustee alleged in the 2013 suit that PricewaterhouseCoopers was negligent in not detecting a massive fraud scheme that brought down Taylor, Bean & Whitaker, which led to the 2009 collapse of Colonial Bank, a Montgomery, Ala. bank with $25 billion in assets, one of the biggest U.S. bank collapses during the Great Recession. [14]

The closely watched case could lead to billions of dollars in damages depending on how a jury answers a fundamental question in accounting: How much responsibility do auditors have for catching fraud? The suit has since been settled for an undisclosed sum in August 2016. [14]

PricewaterhouseCoopers has maintained in court documents that its responsibility is to follow accounting principles — which might not necessarily detect fraud. But in a pretrial brief issued by the trustee, former PricewaterhouseCoopers chairman Dennis Nally is quoted in a 2007 Wall Street Journal article saying that the "audit profession has always had a responsibility for the detection of fraud". [15]

Related Research Articles

Citigroup American multinational investment bank and financial services corporation

Citigroup Inc. or Citi is an American multinational investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking giant Citicorp and financial conglomerate Travelers Group in 1998; Travelers was subsequently spun off from the company in 2002. Citigroup owns Citicorp, the holding company for Citibank, as well as several international subsidiaries. Citigroup is incorporated in Delaware.

Washington Mutual, Inc—abbreviated to WaMu—was a savings bank holding company and the former owner of WaMu Bank, which was the United States' largest savings and loan association until its collapse in 2008.

Citibank is the consumer division of financial services multinational Citigroup. Citibank was founded in 1812 as the City Bank of New York, and later became First National City Bank of New York. The bank has 2,649 branches in 19 countries, including 723 branches in the United States and 1,494 branches in Mexico operated by its subsidiary Banamex. The U.S. branches are concentrated in six metropolitan areas: New York, Chicago, Los Angeles, San Francisco, Washington, D.C., and Miami.

Bank of America American multinational banking and financial services corporation

The Bank of America Corporation is an American multinational investment bank and financial services holding company headquartered in Charlotte, North Carolina. The bank was founded in San Francisco and took its present form when NationsBank of Charlotte acquired it in 1998. It is the second-largest banking institution in the United States, after JPMorgan Chase, and the eighth-largest bank in the world. Bank of America is one of the Big Four banking institutions of the United States. It serves approximately 10.73% of all American bank deposits, in direct competition with JPMorgan Chase, Citigroup, and Wells Fargo. Its primary financial services revolve around commercial banking, wealth management, and investment banking.

Bank One Corporation Former bank of the United States

Bank One Corporation was the sixth-largest bank in the United States. It traded on the New York Stock Exchange under the stock symbol ONE. The company merged with JPMorgan Chase & Co. on July 1, 2004. The company had its headquarters in the Bank One Plaza in the Chicago Loop in Chicago, Illinois, now the headquarters of Chase's retail banking division.

BNP Paribas French bank and financial services company

BNP Paribas is a French international banking group, founded in 2000 from the merger between Banque Nationale de Paris and Paribas, formerly known as the Banque de Paris et des Pays-Bas. The full name of the group's parent entity is BNP Paribas S.A.

SunTrust Banks Former American bank

SunTrust Banks, Inc. was an American bank holding company with SunTrust Bank as its largest subsidiary and assets of US$199 billion as of March 31, 2018. The bank's most direct corporate parent was established in 1891 in Atlanta, where it was headquartered.

Truist Financial Corporation is an American bank holding company headquartered in Charlotte, North Carolina. The company was formed in December 2019 as the result of the merger of BB&T and SunTrust Banks. Its bank operates 2,781 branches in 15 states and Washington, D.C., and offers consumer and commercial banking, securities brokerage, asset management, mortgage, and insurance products and services. It is on the list of largest banks in the United States by assets; as of June 2021, it is the 10th largest bank with $509 billion in assets. As of January 2021, Truist Insurance Holdings is the seventh largest insurance broker in the world with $2.27 billion in annual revenue.

Ally Financial American financial services company

Ally Financial is a bank holding company organized in Delaware and headquartered in Detroit, Michigan. The company provides financial services including car finance, online banking via a direct bank, corporate lending, vehicle insurance, mortgage loans, and an electronic trading platform to trade financial assets.

CIT Group American banking and financial services company

CIT Group (CIT), a subsidiary of First Citizens BancShares, is an American financial services company. It provides financing, including factoring, cash management, treasury management, mortgage loans, Small Business Administration loans, leasing, and advisory services principally to individuals, middle-market companies and small businesses, primarily in North America. Under the reporting mark CEFX, it leases locomotive and goods wagons to rail transport and shipping companies in North America. It also operates a direct bank.

Regions Financial Corporation Alabama Based Financial Services Company

Regions Financial Corporation is a bank holding company headquartered in the Regions Center in Birmingham, Alabama. The company provides retail banking and commercial banking, trust, stockbroker, and mortgage services. Its banking subsidiary, Regions Bank, operates 1,952 automated teller machines and 1,454 branches in 16 states in the Southern and Midwestern United States.

Colonial Bank, formerly a subsidiary of Colonial BancGroup, was headquartered in Montgomery, Alabama. Colonial Bank had 346 branches in the states of Alabama, Georgia, Florida, Nevada and Texas.

Robert E. Lowder is a former American banking executive, and founder and former longtime CEO of the failed Colonial Bank and Colonial BancGroup, Colonial Bank's former parent company. Lowder is an Auburn University alumnus, graduating with a B.S. in Finance in 1964. He is also a former long-serving trustee of Auburn. The Lowder Business Building on Auburn's campus is sometimes thought to be named after him, but according to the AU website, the building is named for his parents, Edward L. and Catherine K. Lowder.

First Republic Bank is an American full-service bank and wealth management company offering personal banking, business banking, trust, and wealth management services, catering to low-risk, high net-worth clientele, and focusing on providing personalized customer experience. The bank specializes in delivering personalized relationship-based service through preferred banking or trust offices in the United States, including San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Palm Beach, Boston, Greenwich, New York City, Jackson, Wyoming, and Manhattan Beach.

Taylor, Bean & Whitaker U.S. financial services firm

Taylor, Bean & Whitaker was a top-10 wholesale mortgage lending firm in the United States, the fifth-largest issuer of Government National Mortgage Association securities. Their slogan was "Perfecting the Art of Mortgage Lending".

Société Générale French multinational banking and financial services company

Société Générale S.A., often nicknamed "SocGen", is a French multinational investment bank and financial services company headquartered in Paris, France. The company is a universal bank and has divisions supporting French Networks, Global Transaction Banking, International Retail Banking, Financial Services, Corporate and Investment Banking, Private Banking, Asset Management and Securities Services.

Wells Fargo American multinational banking and financial services company

Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, California; operational headquarters in Manhattan; and managerial offices throughout the United States and internationally. The company has operations in 35 countries with over 70 million customers globally. It is considered a systemically important financial institution by the Financial Stability Board.

Bankruptcy of Lehman Brothers 2008 bankruptcy of American investment bank

The bankruptcy of Lehman Brothers on September 15, 2008 was the climax of the subprime mortgage crisis. After the financial services firm was notified of a pending credit downgrade due to its heavy position in subprime mortgages, the Federal Reserve summoned several banks to negotiate financing for its reorganization. These discussions failed, and Lehman filed a Chapter 11 petition that remains the largest bankruptcy filing in U.S. history, involving more than US$600 billion in assets.

HBOS United Kingdom banking and insurance company

HBOS plc was a banking and insurance company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group, having been taken over in January 2009. It was the holding company for Bank of Scotland plc, which operated the Bank of Scotland and Halifax brands in the UK, as well as HBOS Australia and HBOS Insurance & Investment Group Limited, the group's insurance division.

Sino-Forest Corporation (Sino-Forest) (TSX: TRE) claimed at one time to be one of the leading commercial forest plantation operators in China. In 2011, the company was accused of fraud and found itself under investigation by the Royal Canadian Mounted Police and the Ontario Securities Commission. On March 30, 2012 Sino-Forest filed for bankruptcy protection in Canada. It also announced that the company would be sold or restructured, with the proceeds going to its creditors. On July 13, 2017, the OSC released its decision finding that Sino-Forest and four individuals, including former CEO Allen Chan, committed fraud.

References

  1. ↑ "Archived copy". Archived from the original on April 24, 2011. Retrieved April 20, 2011.{{cite web}}: CS1 maint: archived copy as title (link)
  2. ↑ "Colonial Bancgroup" (PDF). PacerMonitor. PacerMonitor. Retrieved June 8, 2016.
  3. ↑ "Company Overview of Colonial Bancgroup Inc". Bloomberg. Retrieved July 14, 2013.
  4. ↑ "One in eight lenders may fail, RBC says". Reuters. February 9, 2009.[ dead link ]
  5. 1 2 "Ex-Taylor Bean President Admits His Role in $1.9 Billion Financial Fraud". Bloomberg. March 15, 2011.
  6. 1 2 3 "United States v. Catherine Kissick Court Docket Number: 1:11-cr-88-LMB". justice.gov. The Department of Justice. Retrieved June 15, 2015.PD-icon.svgThis article incorporates text from this source, which is in the public domain .
  7. ↑ "United States v. Lee Bentley Farkas Court Docket Number: 1:10-cr-200". justice.gov. The Department of Justice. Retrieved June 15, 2015.
  8. ↑ Press, CNN (August 15, 2009). "BB&T buys Colonial bank; 4 other banks fail – CNN Money" . Retrieved August 15, 2009.
  9. ↑ Press, South Florida Business Journal (June 10, 2009). "Colonial hit with cease and desist order" . Retrieved August 15, 2009.
  10. ↑ Fitzpatrick, Dan; Enrich, David; Crittenden, Michael R. (August 15, 2009). "Major Bank Fails in South". The Wall Street Journal.
  11. ↑ Isidore, Chris; Pepitone, Julianne (August 14, 2009). "BB&T buys Colonial bank; 4 other banks fail". CNN. Retrieved April 30, 2010.
  12. ↑ "Colonial Bancgroup Chapter 11 Petition" (PDF). PacerMonitor. PacerMonitor. Retrieved June 8, 2016.
  13. ↑ Stempel, Jonathan (August 26, 2009). "Colonial BancGroup files Chapter 11". Reuters . Retrieved August 27, 2009.
  14. 1 2 Rapoport, Michael. "Crisis-Era Lawsuits Winding Down? Not for PricewaterhouseCoopers". WSJ.com. The Wall Street Journal. Retrieved July 29, 2016.
  15. ↑ Chabeli, Herrera. "Largest lawsuit against an auditor goes to court for $5.5 billion". MiamiHerald.com. The Miami Herald. Retrieved July 29, 2016.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.