Pittsburgh Bank To Buy Riggs
PNC Financial to Pay $705.2 Million For Embattled Washington Institution
By Terence O'Hara
Washington Post Staff Writer
Saturday, July 17, 2004; Page A01
Riggs National Corp., reeling from multiple probes into money laundering within its once-elite embassy banking division, yesterday agreed to sell out to a Pittsburgh banking company for a bargain price.
One of Washington's oldest commercial institutions, the 168-year-old bank will become part of PNC Financial Services Group Inc., which will pay a combination of cash and stock worth $705.2 million. The deal is not expected to be made final, however, for at least another six months, and PNC has reserved the right to cancel the purchase if regulators or prosecutors charge Riggs with any further wrongdoing.
PNC officials said the purchase will give them a low-priced entry into one of the most profitable and fastest-growing banking markets in the country. All of Riggs's 51 branches, about three-quarters of which are in the District, will be renamed PNC.
Joe L. Allbritton, the face of Riggs for more than 20 years after he bought it in 1981, and his son Robert, the current chief executive, will cash in stock options worth millions in the deal. Joe Allbritton steadfastly refused to sell Riggs during an era of bank consolidation when ordinary shareholders might have realized more of a premium and instead charted it on a course that produced a long, slow decline in earnings and prestige. At the same time the bank was cultivating high-risk relationships with foreign leaders including officials of the Saudi government, Chile's Augusto Pinochet and Equatorial Guinea's Teodoro Obiang Nguema.
There was no showy news conference with both merger partners proclaiming the deal, which valued Riggs on the low end of comparable purchases. In a written response to a list of questions, Joe Allbritton, who remains the company's biggest shareholder, expressed regret that the bank will lose its independence. But he said, "Now it is time to move along and let others manage Riggs into the future."
The money-laundering scandal permanently stained one of Riggs's few remaining assets -- its good name -- and ultimately pushed the bank to put itself up for sale.
"In its heyday it was a world-class organization," said longtime area banker Bernard H. Clineburg. "It's sad to see them go like this."
Riggs Bank President Lawrence I. Hebert said PNC will give Riggs customers access to a broader array of products. "We have found the best solution for shareholders, customers, employees and our communities," Hebert said.
The bank has roots in the beginnings of Washington as a city. Riggs played a role in the financial life of the young republic and its capital unmatched by any other institution, here or in New York. The bank financed the construction of the Washington Monument, made sure the United States had enough gold on hand to purchase Alaska from imperial Russia, and counted dozens of presidents and their families as customers.
But in recent years it was its relationship with the diplomatic community that distinguished Riggs in Washington. The diplomatic business, which insiders say Joe Allbritton doted on and was personally involved in, accounted for the largest chunk of Riggs's local deposits but was an expensive -- and ultimately unprofitable -- business to maintain. Three relationships in the division -- Equatorial Guinea, Saudi Arabia and Augusto Pinochet -- are the focus of congressional, regulatory and criminal investigations.
Things began to go bad for Riggs soon after Sept. 11, 2001, when news reports indirectly linked a Saudi Arabia embassy account to one of the hijackers. This, and subsequent news reports about the bank's relationship with Equatorial Guinea, sparked intense regulatory scrutiny of Riggs in 2002 and 2003. In May, Riggs was fined a record $25 million for its failure to abide by regulation designed to prevent money laundering.
Riggs's problems deepened this week with the release of a Senate report that found the bank had helped Pinochet hide millions from international prosecutors, that said it appeared to help Equatorial Guinea officials divert state oil revenue to their personal accounts and that raised questions about the relationship between Riggs and its former top bank examiner who took an executive position with the bank when he retired.
In the past year Riggs lost approximately 22 percent of its deposits, principally as a result of the end of its relationship with Equatorial Guinea, its largest customer.
Sources with knowledge of the matter, speaking on condition of anonymity, said regulators continue to probe senior officials at Riggs, including Allbritton, for their role in possible money laundering. A grand jury in the District is also investigating Riggs's handling of the Equatorial Guinea accounts.
As a result of its regulatory problems and to prepare itself for sale, Riggs has hired teams of lawyers and experts to revamp its compliance efforts and begun divesting itself of its international and embassy business. At the same time, the bank is in its third year of an ambitious effort to improve its retail banking operations.
PNC plans to follow Riggs's existing retail banking strategy, however, which involves opening 30 branches in the suburbs in the next three years and revamping existing branches. About 100 new customer service and branch employees will be hired by PNC.
No senior executives are expected to remain after the merger, and PNC officials said no Riggs board members would join PNC's board. Many executives, however, will profit from the deal.
The structure of the purchase is unusual in that it involves both a fixed number of PNC shares and a fixed amount of cash. If Riggs insiders exercise options to acquire more shares, it will reduce the amount of money other shareholders receive. At PNC's closing price Thursday, Riggs shareholders would receive about $23.59 per diluted share.
Joe Allbritton, who directly owns more than 7.4 million shares but together with his wife and son controls more than 13 million shares, could earn more than $3.4 million on options he was granted in 2001 alone. When he retired, he had options on more than 3.8 million shares.
Robert Allbritton could realize nearly $10 million in profit from options he received in the past three years.
Hebert, a longtime Allbritton lieutenant who became chief executive of the bank in 2001, last year was granted options that are worth more than $500,000 in the merger.
Shareholders who bought Riggs in recent years -- the stock briefly hit $30 a share in 1998 but for nearly all of the past 10 years has traded for less than $15 a share -- will probably make money. Riggs stock climbed to more than $40 a share in 1986 during a bank merger heyday. The Allbritton family together owns more than 40 percent of the stock, most of it acquired in Joe Allbritton's hostile takeover of the bank in 1981. In 1992, the Allbrittons bought another large block -- for less than $5 a share -- of stock when Riggs needed more capital after it was hammered by the region's commercial real estate crunch.
The price PNC is paying values Riggs at about twice its book value, or the difference between its assets and liabilities. Most banks of this size sell for 2.5 times book value, analysts said, and many such deals have been higher than triple book value.
"A fair offer was made for the bank," Joe Allbritton said. "The price was worked over at length and was agreed upon by all parties. I think it is a fair price, yes."
The pending demise of the bank, after revelations of possible money laundering, left longtime customers rueful.
V. Jones, 39, of the District, a publication specialist for George Washington University, said she opened an account with Riggs Bank a couple of weeks ago because it is in her neighborhood.
"I went with Riggs Bank because it's an old name," she said. "I even remembered it from my childhood. I was born and raised in Washington, D.C., and now with this happening, it's going to make me go to another bank."
Riggs is the oldest publicly owned company in the metropolitan Washington area and one of the last of a long list of disappearing local commercial icons, following companies such as Garfinckel's, Woodward & Lothrop, Hechinger, People's Drugs, and Galt & Bro. jewelers into oblivion.
Jamel Schofield, 32, of the District, an office manager for a tour company, said she didn't like that the Riggs name will disappear. "I think that's just sad, a sad day for D.C."
Staff writer Raymund Flandez contributed to this report.
© 2004 The Washington Post Company