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Colonial  Takeover Almost 'Risk Free': BB&T CEO

CNBC.com, with wires
Tuesday, 18 Aug 2009 | 10:56 AM ET

BB&T CEO Kelly King told CNBC Tuesday that the firms' agreement to buy about $22 billion of Colonial Bank's assets is almost "risk free."

BB&T agreed to purchase the assets last week. The FDIC and BB&T agreed to share losses on about $15 billion of those assets. The bank had deposits of about $20 billion as of June 30.

"It's essentially a risk-free transaction for BB&T," said King.

The bank will suffer no PNL, or profit and loss, impact for the first $5 billion of losses, upwards of that to $14 billion it will share in 5 percent of the losses, King said.

The most the bank could lose is $500 million over several years, he said.

Still, the bank is not completely immune.

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BB&T's takeover of Colonial BancGroup has raised the regional bank to the eight largest US bank by deposits. CEO Kelly Ling talks to CNBC about the deal.

"While it's a good deal for BB&T, it's not a great gift. People should not have that mistaken impression," said King.

Kelly said his bank had followed Colonial for a number of years and had been in discussion with the bank since December. The takeover will push BB&T from 16th in the market share in Florida to the 5th. It will also make the bank the 8th largest bank in the nation.

The southeast regional bank said it raised $870 million in its second large public offering this year.

BB&T said the proceeds will boost its equity capital and will be used for general corporate purposes, rather than absorbing specific credit problems.

Winston-Salem, N.C.-based BB&T said it will grant underwriters an option to purchase up to an additional 15 percent of the shares under offer.

BB&T stock was sold at $26 per share, selling 33.45 million shares, according to an underwriter on the deal.

The sale represents a 1.6 percent discount to Monday's closing price.

"This is somewhat of a safety measure for the bank, and they showed earlier this summer they have an ability to readily raise capital," said Chris Marinac, an Atlanta-based bank analyst at FIG Partners LLC.

BB&T in May raised $1.5 billion after the government's "stress tests" aimed at determining big banks' potential to withstand a more severe economic downturn.

The following month, it repaid the U.S. government's $3.1 billion Troubled Asset Relief Program, or TARP, investment, and is one of the few to do so this year.

The latest offering buttresses the bank's tangible common equity ratio on the heels of the Colonial acquisition, a deal dilutive to BB&T's capital. During the banking sector downturn, analysts and industry observer have used the tangible common equity ratio to gauge a bank's health and ability to absorb climbing credit issues.

Most banks, analysts said, are attempting to keep the ratio at more than 6 percent; BB&T's stood at 6.5 percent at the end of June, but that was before the Colonial takeover.

"They want to keep it at 6 percent, there's no doubt about that," Marinac said.

In a conference call with reporters, BB&T Chief Financial Officer Daryl Bible said the company's management was committed to keeping the bank's tangible common equity level "well above" a previously released guideline of 5.5 percent.

While Bible said the elevated ratio is not related to any specific credit concerns for the bank, "we are not through this credit cycle yet."

"Assets are still going bad, but we expect it to be happening over a slower pace over the next few quarters," he said.

Credit Suisse Securities and Deutsche Bank Securities are underwriters for the common stock offering and it will be co-managed by subsidiary BB&T Capital Markets.

—Reuters contributed to this report.

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