Colonial Bank Exemplifies the Risk of Failure for FinTech Vendors

Analyst: Bill Bradway

August 19, 2009

On August 14, 2009, the Alabama Banking Commissioner shut down Colonial Bank and the FDIC auctioned off Colonial’s deposit base and most of its assets to BB&T, a large Southeastern regional bank.

A deal the size of Colonial Bank (346 branches, 4,500 employees) forces the acquiring bank to capture a meaningful portion of the deal value through expense reductions. Redundant operating functions need to be eliminated. Technology and operations are two areas that must undergo a rigorous integration process that will be critical to retaining Colonial’s customers while converting technology platforms, applications, and business processes to the BB&T way. The timing of IT and operational expense reductions are driven by decisions BB&T has made or will make.

Colonial’s failure, which was expected, exposes FinTech vendors to a potentially abrupt loss of revenue. FinTech vendors that serve poorly performing large and medium sized regional banks face an FDIC transaction risk.

• What are the consequences of this type of transaction to the FinTech vendors?
• Is it possible for FinTech vendors to win some and lose others that balance each other?
• Is there a net reduction in IT spending when larger FDIC deals are consummated?
• Will any vendors come out ahead? If so, which ones?

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