The federal government yesterday sold National Bank of Washington for $33 million to Riggs National Bank, the District's largest bank, in a transaction that will rank among the 10 costliest bank rescues ever.

The Federal Deposit Insurance Corp. said it will cost American taxpayers at least $500 million to bail out NBW, which was officially closed yesterday and declared insolvent. NBW's 18 District branches will reopen Monday under the Riggs name.

Riggs's purchase was the latest in a long series of savvy financial moves engineered by the bank's chairman, Joe L. Allbritton, analysts said.

The combination of the two banks solidifies Riggs's position as the District's dominant bank, adding $1 billion in deposits to the bank's $5.7 billion. Because of Riggs's strong presence in the Washington market, most NBW customers are expected to become customers of Riggs.

"This clearly puts Riggs on top," said Arnold Danielson, a Rockville-based banking consultant.

Allbritton said in a statement that the purchase of NBW "fits into Riggs's expressed strategy of concentrating on quality, liquidity and profitability, in that order of priority."

Although it's unclear which other banks actually made bids for NBW, several local institutions expressed interest to the FDIC, including Crestar Financial Corp. and Sovran Financial Corp., sources said. NCNB Corp., the North Carolina banking giant that has long been interested in entering the Washington market, also had expressed interest in the deal, sources said.

Last week, federal regulators seized control of beleaguered NBW after its parent firm, Washington Bancorporation, filed for bankruptcy protection from creditors. While negotiating for a buyer, the government has been operating the bank, which has been plagued by problem real estate loans and management turmoil.

{Meanwhile, the Treasury Department said yesterday a $368,000 civil penalty had been assessed against NBW because of what the government said were improper currency transaction reports discovered during a money laundering investigation, the Associated Press reported.

{The penalty was assessed before the government took over the bank Aug. 1. The Treasury said the penalty was based on the bank's failure to file currency transaction reports as required by law, according to AP. Most of the violations were discovered during a federal undercover operation, the Treasury said.}

The announcement of Riggs's takeover shocked the 900 employees remaining at NBW, who were officially laid off late yesterday afternoon and then rehired on a temporary contract basis by Riggs. It was unclear how many employees ultimately will be hired by Riggs.

A number of employees burst into tears and many left NBW's headquarters immediately after regulators relayed the news at an afternoon meeting, according to people present.

Michelle McNeil, 31, who has been working with the private banking division for the past two years, said, "I just don't know what to say. No separation pay. We lose vacation time."

"It's really unbelievable," said a 20-year NBW veteran.

To complete the sale and protect NBW depositors, the FDIC said it will advance about $400 million to Riggs and will keep about $500 million of troubled NBW loans that Riggs refused to accept.

As part of the transaction, Riggs will take on about $1 billion in NBW deposits and about $1.1 billion of NBW loans and other assets. However, Riggs retains the option of returning any loans it doesn't like to the federal government during the next four months -- an option that could raise the cost of the rescue to taxpayers. Riggs also has taken over NBW's trust business, a money management operation it has coveted for several years.

"Compared to the other bids received and the actual cost of doing a depositor payout {where all depositors are paid off and the bank's assets are sold}, this was a better alternative," said FDIC spokesman David Barr.

"Although it may appear costly, from the government's standpoint, it was a good deal," Barr said.

NBW's small Maryland and Virginia banks were not included in the government takeover or purchased by Riggs. Those banks continue to operate under the NBW name.

So far, the FDIC has taken on nearly one-third of NBW's total assets, all of that in the form of problem loans. Even in the costliest rescue to date, that of First Republic Bancorp of Dallas -- which cost taxpayers about $3 billion -- the government assumed only 10 percent of the bank's assets.

Barr said the ultimate cost of the NBW rescue will depend largely on how much money the FDIC can generate from the sale of loans left in the government's hands.

Riggs's purchase came as no surprise to analysts, who said yesterday that the combination of Riggs and NBW was ideal.

Both institutions are old-line Washington banking firms focused on the District. Riggs already operates 30 branches in D.C., 18 in Northern Virginia and eight in Maryland. The purchase of NBW will let Riggs consolidate operations and improve profit margins. Riggs's large deposit base also complements NBW's large pool of borrowers.

"It's the perfect fit," said Danielson. "And more importantly, it gives Allbritton the edge he needs to keep his reputation as a leader."

Allbritton, who owns 35.8 percent of Riggs stock, has indicated that he wants to maintain control of Riggs and keep it an independent bank. But in recent years, the chairman has found himself surrounded by super-regional banking giants in Maryland and Virginia. The competition from neighboring states has significantly altered Riggs's claim of being the Washington area's top bank.

"Now, no one will be able to touch Riggs," Danielson said. "It's just what Allbritton has been looking for."

Riggs stock closed yesterday at $12.50, up 25 cents. The acquisition was not announced until after the stock market closed.

Allbritton has considered buying NBW several times in the past decade and even had discussions with former NBW chairman Luther H. Hodges Jr. about how a purchase might be structured. But those talks fell apart after the negotiations were publicized.

John J. Mason, who took over as NBW chairman in May, said he had received several inquiries from Riggs about buying parts of the bank, including the trust department.

"It was clear they were interested," Mason said. "But we were so tied up with other matters, we didn't have time to discuss anything seriously."

Although Riggs has been hurt financially by the slowdown in the area's commercial real estate market, it was poised for an acquisition. Last year, Riggs authorized the sale of millions of dollars of preferred stock to the public. Although the sale was intended to make it more difficult for Riggs to be acquired, it also allowed the bank to raise its capital base, positioning it to buy another bank.

"This doesn't hurt Riggs one bit," said one local banker. "It was the best deal in the world for them."

The combination of the two banks will lock Riggs, American Security Bank and First American Bank into the top three positions in the District "for a long time to come," Danielson said.

Riggs spokesman David Palombi said the bank will decide in the coming months which NBW branches will be sold. Riggs's sale of valuable NBW real estate likely will offset the $33 million cost of the takeover, sources said.

Bankers familiar with both operations said they would expect at least half of NBW's branches to close and almost all of NBW's 900 employees to lose their jobs.

Analysts said the government's quick sale of NBW was not surprising, even though NBW's managers tried for more than two years to sell the bank without success.

Several factors working against the sale of NBW in the past -- its legal problems, unionized employees, concentration of District branches and soured loans -- were wiped out by the government's intervention.

"We get this bank free and clear," Palombi said.