Riggs Bank Sold to PNC Financial Services Group
By Fred Barbash
Washington Post Staff Writer
Friday, July 16, 2004; 11:47 AM
Pittsburgh's PNC Financial Services Group Inc. has signed an agreement to buy troubled Riggs Bank, once Washington's most venerable financial institution.
The agreement, if ultimately consummated, will put an end to one of the oldest continuing businesses in the nation's capital and replace it with a new, comparatively aggressive competitor for consumer and small-business loyalty.
Riggs, 167-years-old, is the oldest Washington-based banking institution. But its illustrious history has not protected it from falling on hard times recently, however.
The bank was fined in May for repeated violations of laws designed to prevent money laundering and was the subject of a Senate investigative hearing yesterday on allegations that it hid assets of former Chilean dictator Augusto Pinochet. The Senate Governmental Affairs Committee also is conducting a separate probe of the bank's dealings with the Embassy of Saudi Arabia.
The bank's earnings have suffered as well over the past few years, in part, analysts say, because it has failed to adjust to the more aggressive, marketing-oriented business approach adopted by the nation's successful banks, such as PNC.
PNC is buying Riggs National Corp., the bank's parent company. All Riggs branches will assume the PNC bank name. PNC said it would add 30 new branches to Riggs's existing 51. Most of the new branches, according to PNC, will be in the suburbs of Washington rather than in the city.
PNC executives also said they would cater to small businesses in the Washington area, which they said Riggs had avoided.
Meanwhile, PNC will dispense entirely with all of Riggs's international and embassy banking operations, which led to the problems Riggs faces today.
PNC valued the acquisition at $779 million, including $321 million in cash and 7.5 million in PNC stock.
Riggs showed a profit of $3.9 million for the first three months of the year, compared with $5.9 million for the first quarter of 2003. The bank has about $6 billion in assets. PNC, by contrast, has quarterly earnings in the range of about $300 million, ten times the profits of Riggs on roughly the same amount of assets.
Riggs has informed investors it confronts potentially substantial civil fines for its alleged regulatory infractions that could significantly reduce earnings.
The deal announced this morning includes a provision allowing PNC to get out of the acquisition should Riggs confront serious regulatory troubles beyond those it now faces. "Surprises can happen," PNC's president, Joe Guyaux, told analysts this morning. "We have the contract language" to deal with them, he said.
In an announcement at 8:30 this morning, Guyaux said he was confident that PNC can "successfully address Riggs's regulatory problems."
The boards of both Riggs and PNC have approved the merger, the announcement said, and Riggs will merge into PNC
"This is the right combination for Riggs," said Mark N. Hendrix, a Riggs spokesman. "PNC will provide our customers with seamless services and a wider scope of products and services while maintaining the proud traditions of Riggs. We have a tremendous amount of respect for PNC."
PNC Chairman James E. Rohr said, "Riggs's strong banking franchise gives us an excellent platform on which to build in the extremely appealing metropolitan Washington marketplace. We believe we will win an increasing share of the region's financial services business."
Under terms of the agreement, each share of Riggs stock will be valued at $24.25, based on PNC's closing stock price of $51.70 on July 14. PNC said it hoped to close the transaction in the first quarter of 2005.
The merger is subject to regulatory approvals and the approval of shareholders. PNC said Joseph L. Allbritton, the major stockholder of Riggs and its former chairman and chief executive, has agreed to vote 24.6 a percent of the outstanding shares of Riggs in favor of the transaction.
Riggs, named after its founder, George Washington Riggs Jr., boasts of having been the bank for most American presidents as well as for Francis Scott Key, who wrote "The Star Spangled Banner," and Davey Crockett, the wilderness legend and one-time congressman, among others. It helped finance the purchase of Alaska and the construction of the U.S. Capitol building.
Federal regulators declared Riggs a "troubled institution" earlier this year, after finding Riggs failed to heed money-laundering rules requiring big transactions to be reported. Tens of millions of dollars moved in and out of accounts of foreign embassies, including Saudi Arabia and Equatorial Guinea. Riggs was fined a record $25 million.
"It is clear that Riggs Bank needed to act more quickly to adapt to regulatory changes that took place after September 11," Robert L. Allbritton, who took over running the bank from his father in 2001, has told shareholders. "We regret that we did not. We have made changes, and we will make more."
Riggs National has banks in Miami and Great Britain, but Riggs Bank is its primary operating subsidiary. PNC said there was no branch overlap between PNC and Riggs, as PNC's banking network is concentrated in Delaware, Kentucky, New Jersey, Ohio and Pennsylvania. It had annual revenues of nearly $6 billion last year.
PNC Financial, based in Pittsburgh, has its roots in traditional banking dating back to the 1800s, but has moved into a variety of financial services. Its flagship remains PNC Bank.
© 2004 The Washington Post Company