DBRS Downgrades Colonial BancGroup and Places It Under Review – Developing

DBRS has today downgraded all ratings for Colonial BancGroup, Inc. (Colonial or the Company) and its related entities, including Colonial’s Issuer & Senior debt rating to BB (low) from BBB (low) and the Deposits & Senior Debt rating of its bank subsidiary, Colonial Bank, N.A. (the Bank), to BBB (low) from BBB. All ratings have been placed Under Review with Developing Implications.

On January 28, 2009, DBRS downgraded Colonial to BBB (low) based on all information available at that time. Since that date, capital market confidence and the Company’s financial flexibility have significantly eroded, resulting in increased pressure on its ratings.

The rating action today reflects DBRS’s concern that Colonial’s financial position has been significantly weakened by recent market events that may make capital raising efforts more difficult. In DBRS’s opinion, the inability of Colonial to obtain additional capital will severely limit its ability to absorb future credit costs and other unforeseen charges. Given the rapidly deteriorating economy, DBRS anticipates sizable additional provisioning during Q1 2009. Beyond the Troubled Asset Relief Program (TARP) and equity raises, DBRS anticipates Colonial to consider asset sales as a means of strengthening its underlying capital position.

DBRS notes that positive rating action may occur if Colonial obtains the additional capital and/or a capital infusion from the U.S. Treasury. Conversely, the inability of Colonial to obtain capital and/or an infusion from the Treasury would likely lead to a multiple-notch downgrade. Moreover, DBRS will continue monitoring the Bank’s ability to protect its deposit franchise, which is an underlying factor in the ratings.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Banks and Bank Holding Companies Operating in the United States, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.