It's bank failure Friday! [View All]

[Joanne98]

It's starting early today!

Another setback for troubled Colonial Bank
Judge grants temporary restraining order barring asset transfer by FDIC-insured bank in response to Bank of America suit.
By Grace Wong, CNNMoney.com contributing writer
Last Updated: August 14, 2009: 11:08 AM ET
LONDON (CNNMoney.com) -- Southern regional bank Colonial Bank is on the verge of failure, a federal judge said in granting a request made by Bank of America to freeze Colonial's assets.

U.S. District Judge Adalberto Jordan ruled Thursday in favor of Bank of America (BAC, Fortune 500), which had requested a temporary restraining order to keep Colonial from liquidating or transferring assets worth $1 billion.

Individual depositors are protected through the Federal Deposit Insurance Corp. A spokesman said the FDIC has no comment on the ruling at this time.

"Viewing Colonial's contractual breach in conjunction with the fact that Colonial is on the brink of collapse and is suspected of criminal accounting irregularities, the potential for immediate substantial injury to Bank of America is clear," the judge said in his order.

The lawsuit filed by Bank of America involved more than 6,000 mortgages issued by its subsidiary and held in trust by Colonial. According to the motion, Bank of America is owed more than $1 billion in assets but Colonial has failed to pay the amount owed.

Trouble has been brewing recently for Colonial, which is owned by Montgomery, Ala.-based parent Colonial BancGroup (CNB). Last month, the bank said in a statement that it had "substantial doubt about Colonial's ability to continue" due to uncertainties about its ability to increase its capital levels.

Shares of Colonial BancGroup, which have fallen 80% in 2009, were not trading Friday morning.

http://money.cnn.com/2009/08/14/news/companies/colonial/?postversion=2009081410