Riggs Stockholders Decide How to Collect in PNC Deal

By Jerry Knight
Monday, May 9, 2005

Riggs Bank's customers and shareholders are facing a tough decision: Should they stay, or should they go?

Riggs will be history after Friday, when PNC Financial Services Group Inc. of Pittsburgh completes its $650 million purchase of Washington's oldest bank.

Customers have to figure out whether to keep their accounts with PNC, which started notifying Riggs' depositors and mailing them new checkbooks even before the perfunctory shareholder vote last Friday that approved the merger.

Investors too must decide whether they want to stick with PNC as shareholders after the takeover. As a longtime Riggs customer, I think depositors have the easier choice.

The transition when a bank is sold is always rocky and inevitably drives away some customers. But at Riggs, service and products can only get better, considering the problems that tested the patience of the bank's customers for so many years.

My personal favorite was the time last year when an $84,000 deposit showed up in one of our family checking accounts. No mistake, a Riggs teller assured my wife: "Maybe your husband put the money in and forgot to tell you about it." Sure. Happens all the time.

Talking Riggs into taking back the money was easier than straightening out a couple of other problems we've had. But those of us who became inured to dealing with well-meaning if inefficient bankers are probably not going to switch banks after all these years.

Riggs shareholders already have had to make their initial choice. Friday was the deadline to tell PNC whether they wanted cash or PNC stock for their Riggs shares. Their options: $19.37 in cash or 0.3763 shares of PNC for each Riggs share.

People who didn't choose will get a combination of cash and PNC stock. That also could happen to other shareholders, because PNC has capped the amount of cash ($286.2 million) and the number of shares (6.4 million) it will pay. If stockholders overwhelmingly decided to take cash or stock, they will wind up getting some of both. PNC officials said Friday that they didn't know yet how many Riggs stockholders asked for cash and how many want stock.

Those who chose cash will have to pay federal taxes next year on any capital gains. Those who end up with stock will have to decide whether it's an investment worth keeping over the long run.

Most analysts are cautious about the banking sector because rising interest rates threaten to pinch bank profits, which have been fattened in recent years by record-low interest rates. And most analysts are at best lukewarm toward PNC, whose stock gets "hold" or "sell" ratings from 16 of the 19 analysts who follow the company. According to Bloomberg, PNC is rated "buy" by just three firms: Banc of America Securities, A.G. Edwards & Sons Inc. and Sandler O'Neill & Partners LP.

"While we expect banks to under-perform the broader market, we believe the risk/reward of PNC shares is attractive at current prices," A.G. Edwards analyst David A. George said in a research report issued last week after a visit to PNC headquarters. Like the other analysts recommending that their clients buy PNC stock, George considers the shares undervalued compared with other regional bank stocks.

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