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Buying Riggs Has Its Draws, Drawbacks

Legal Problems Drove Down PNC's Offer, but Bank Attracting New Suitors With Its Washington Area Market

By Kathleen Day
Washington Post Staff Writer
Wednesday, February 9, 2005; Page E01

The for-sale sign is back out at Riggs Bank after an agreement to be purchased by Pittsburgh-based PNC Financial Services Group Inc. fell apart this week when the Riggs board said a new offer from PNC of less than $21 a share was too low.

Other potential bidders, including several that lost out to PNC last summer, already have placed calls indicating their interest, sources familiar with the situation, who spoke on the condition that their names not be used, said yesterday. And despite the breakdown in talks between Riggs and PNC, which resulted in Riggs filing suit for breach of contract Monday, talks between the two could be revived.

Want to Buy a Bank? As Riggs searches for new suitors, a potential acquirer will weigh the pluses and minuses.
_____Post 200 Profile_____
Riggs National Corp.
_____Related Coverage_____
PNC, Riggs Announce Merger (The Washington Post, Feb 10, 2005)
Riggs Files Suit Against PNC Over Collapse Of Merger Talks (The Washington Post, Feb 8, 2005)
Riggs Negotiating With PNC Over Lower Sale Price (The Washington Post, Feb 2, 2005)
Special Report: Riggs Bank

Riggs still has its allure as an acquisition target despite a guilty plea last month to a felony charge of failing to report possible money laundering and related ongoing civil and criminal federal probes into what role, if any, current and former officers and employees of the bank played in the violations.

The biggest draw, according to industry lawyers and analysts, is Riggs's well-situated branch network across the greater Washington region, one of the fastest-growing and most affluent financial markets in the country.

"The biggest reason to buy Riggs is its presence in a very attractive banking market," said Gerard S. Cassidy, managing director of bank equity research at RBC Capital Markets, a New York-based brokerage house owned by the Royal Bank of Canada.

Cassidy, using information PNC gave to stock analysts last summer to explain why it wanted to buy Riggs, said population in the bank's region is projected to grow 8.4 percent over the next five years, compared with national population growth estimates of 5.3 percent for the same period. And the Washington area is the fifth wealthiest in the country.

The bank also has a healthy loan portfolio, with a relatively low level of defaults.

But the potential downside to buying Riggs, Cassidy and others say, is complex and grows more so each day. That is what led PNC to offer a new price in recent days that was substantially below the $24.25 a share it originally offered in July.

The bank's earnings have been battered by tens of millions of dollars in legal fees spent over the past year in connection with federal investigations, and there is no end in sight to mounting legal costs. In addition to expenditures for suing PNC, Riggs must foot the bill to fight pending suits against the bank by investors and by victims of the Sept. 11, 2001, terrorist attacks and their families, who allege Riggs's failure to adhere to federal banking laws made it easier for the hijackers to obtain financing.

The bank also must pay legal fees incurred by current and former executives, including its largest shareholder and former chief executive, Joe L. Allbritton, and his family, in connection with the government's criminal and civil probes.

Another potential cloud for any acquirer is the bank's long-standing relationship with the CIA. Sources familiar with the bank's operations and sources in the intelligence community say that since the 1960s Riggs at least held funds related to CIA operations or agents, and several officers of Riggs had high-level security clearances. However, law enforcement authorities say Riggs's CIA connections had nothing to do with the bank's violations of anti-money-laundering laws. And the subject did not arise in the bank's negotiations with the U.S. attorney for the District over Riggs's guilty plea, the sources said.

Yet another unknown is how many core customers and deposits and other business Riggs has lost or may lose because of publicity over its violations of federal law, which have included not reporting transactions that may have allowed former Chilean dictator Augusto Pinochet to hide millions of dollars from federal and international regulators and law enforcement officials.

Riggs spokesman Mark N. Hendrix, while declining to give details, said the bank's customer base is sound. "Our core banking franchise continues to perform at a strong level," he said. "We have very loyal, long-standing customers."

The stock closed yesterday at $19.99 a share, up 14 cents, fueling speculation that perhaps PNC's new bid was not far off the mark.

Robert M. Garsson, a spokesman for the Office of the Comptroller of the Currency, the unit of the Treasury Department that regulates Riggs, also declined to comment on the PNC deal but said Riggs "is a well-capitalized institution and has taken steps to correct" its violations of federal law that Congress intended to thwart terrorists and other criminals from using the U.S. financial system for their banking.

Staff writer Terence O'Hara contributed to this report.

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