Aug
13
2009
Sandy Hutchens brings you the big news
Author: adminBank of America Corp (BAC.N) sued Colonial BancGroup Inc (CNB.N) for more than $1 billion in loans and cash, and urged a federal court to order the struggling lender not to sell certain assets, pushing the company into further trouble.
Bank of America asked for a temporary restraining order, debarring Colonial from selling certain proceeds it received from Freddie Mac (FRE.N) (FRE.P) in return of mortgage loans, and certain other loans that the company held, which were owned by Ocala Funding LLC, court documents show.
Bank of America, which was the collateral agent for the Ocala Funding loans, sought an emergency injunctive relief in a complaint filed with a U.S. federal court in Florida on Wednesday.
Colonial held the loans as a custodian, agent and bailee through bailee letters, but even when the bailee letters were terminated, Colonial refused to return the proceeds and the loans to Bank of America, the U.S. banking giant alleged.
Colonial said last Friday it faces a criminal probe by the U.S. Department of Justice on accounting irregularities at its mortgage lending unit, and warned it may be put under receivership. [ID:nBNG433906]
It had also said the Alabama State Banking Department may appoint the Federal Deposit Insurance Corp as receiver or conservator for its banking unit after Aug. 12.
However, Alabama banking regulators said their scheduled meeting on Wednesday with Colonial Bank (CNB.N) had been canceled, but did not cite any reason. [ID:nN8C121593]
Colonial has been badly battered by the credit crisis, as higher charge-offs and rising foreclosures in the bank’s Florida construction-loan portfolio continue to strain its balance sheet.
The company operates 355 branches in Florida, Alabama, Georgia, Nevada and Texas and has over $25 billion in assets. If it fails, it would be the largest failure this year.