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August 15, 2009

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Bank of America wins court protection

BANK of America Corp won a temporary restraining order against Colonial Bank on Thursday when a federal judge in Miami ordered Colonial to freeze US$1 billion in assets, saying the Montgomery, Alabama-based bank "is on the brink of collapse" and "suspected of criminal accounting irregularities."

The ruling came a day after Bank of America sued to protect its claim on Colonial loans. Bank of America said Colonial has refused to return more than US$1 billion it got from Freddie Mac for loan purchases that Bank of America helped fund, which could expose it to losses if Colonial is seized by banking regulators.

Bank of America was a trustee to parties that provided financing for Colonial's mortgage business.

Colonial said on August 7 that it faces a criminal probe by the US Department of Justice on accounting irregularities at its mortgage lending unit, and warned it may be put under receivership.

Judge Adalberto Jordan of US District Court for the Southern District of Florida said in a ruling that Charlotte, North Carolina-based Bank of America could face "immediate substantial injury" without the temporary relief, which "poses very little threat of harm" to Colonial.


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