Moody's downgrades Colonial Bank

Moody's Investors Service said it downgraded Colonial Bank's issuer rating to Baa1 from A3, subordinated bond rating to Baa2 from Baa1 and senior unsecured deposit rating to Baa1 from A3, the preferred stock of Colonial Capital Trust III and Colonial Capital Trust IV to Baa3 from Baa2 and CBG Florida REIT Corp.'s preferred stock to Ba1 from Baa3.

The outlook was changed to negative from stable.

The agency said the downgrade was based on Colonial's sizable concentration in Florida commercial real estate, residential development in particular. Moody's said that Colonial's commercial real estate exposure accounts for over six times tangible common equity, with construction lending comprising two-thirds of total commercial real estate. The agency believes this portfolio will worsen significantly beyond the deterioration experienced to date.

Colonial enters this challenging period with good liquidity and regulatory capital ratios, Moody's noted.

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