Riggs National Corp. has hired an investment bank to seek out potential buyers for the company, after months of unprecedented internal upheaval and intense regulatory scrutiny of its banking relationships with foreign embassies.
The board of Riggs National, parent of the largest commercial bank based in the Washington area, retained Lehman Brothers Holdings Inc. to advise it on strategic alternatives, including the sale of all or part of the company, according to a source with knowledge of the matter who spoke only on the condition that he not be identified.
Riggs spokesman Mark N. Hendrix said, "It's our policy not to comment on inquiries of this kind." A Lehman spokeswoman declined to comment.
Riggs's stock price has risen since late April, when it disclosed deepening regulatory troubles related to its embassy banking division. Regulators earlier this month fined the bank $25 million for failing to comply with anti-money-laundering laws in its relationships with embassies, especially those of Saudi Arabia and Equatorial Guinea.
The company has already announced, under pressure from regulators, that it plans to exit embassy banking and sell most of its European business and a unit in Florida. But after years of resistance to selling by Riggs's controlling shareholder and longtime chairman, Joe L. Allbritton, the board has given Lehman a mandate to explore a broader array of options, the source said.
Allbritton announced on April 29 he would resign from the board altogether, which he did effective yesterday. His son Robert is chairman and chief executive. Riggs stock was $15.31 on April 28, and closed up 22 cents yesterday, at $18.74.
The decision to consider a sale, reported yesterday by Bloomberg News, comes at a time of upheaval within Riggs. Yesterday, Riggs National President Timothy C. Coughlin, the longest-serving senior executive, told the company's board he will retire next month.
Coughlin has been president of the holding company since 1992 and has had a 21-year career with Riggs. His mid-June departure will be the latest in a series of executive changes at the company.
Coughlin, through a Riggs spokesman, declined to comment. A source familiar with the matter, who would discuss the retirement only on the condition that he not be named, said Coughlin, 62, was not asked to leave the company but told board members he thought it was time to retire. He had relinquished his Riggs National board seat in April. He was paid $435,137 in salary and bonuses last year.
Coughlin was the number two executive at the company and serves on the boards of a number of local nonprofit and cultural institutions. Earlier this year he took on responsibility for Riggs's embassy banking division after it became the focus of regulatory scrutiny. Sources familiar with the matter, speaking on condition they not be named, said executive vice president and embassy banking head Raymond M. Lund was ousted early this year and is one of two Riggs officers subject to possible civil penalties for not adequately supervising their staffs.
No replacement for Coughlin was named yesterday. The company said in a statement that it will "evaluate how best to fill the responsibilities Mr. Coughlin had as president."
Coughlin informed the Riggs National board of his decision after yesterday's annual shareholder meeting.
At that meeting, Robert Allbritton was asked by a shareholder if he would consider an offer to buy the company. "We don't have anything in front of us," Allbritton said, adding that he wouldn't comment on any negotiations between Riggs and a potential buyer.
Allbritton also highlighted the senior management changes made in the past year. Riggs Bank recently hired a former Treasury Department official as its vice chairman, and last year hired a new chief compliance officer. Riggs also named Anthony P. Terracciano, former chairman of First Fidelity Corp. and Dime Bancorp, to its board. Allbritton said these appointments showed the company had "significantly bolstered our senior management and board level talent."
Allbritton offered few details about how Riggs Bank allowed its procedures to lapse, however.
"Looking back, with the benefit of hindsight, it is clear that Riggs Bank needed to act more quickly to adapt to regulatory changes that took place after September 11th," Allbritton said, referring to increased government scrutiny of bank customers who meet the government's criteria for being high-risk as a way to head off financing of terrorist activities. "We regret that we did not. We have made changes, and we will make more."
Allbritton, 34, addressing a group of about 50 people at the meeting and speaking publicly about the matter for the first time, sought to make a clear distinction between Riggs's regulatory failures and any connection to terrorist financing. "To my knowledge, Riggs has never been used to finance or facilitate terrorist financing," he said.
The Office of the Comptroller of the Currency, the Federal Reserve and the Financial Crimes Enforcement Network said Riggs failed to properly report to regulators tens of millions of dollars in suspicious transactions involving people associated with the embassies of Equatorial Guinea and Saudi Arabia, including Prince Bandar bin Sultan, the Saudi ambassador to the United States.
Riggs consented to the enforcement actions and agreed to make improvements in its compliance with the Bank Secrecy Act, which requires banks to monitor customer behavior and report transactions whose purpose could be to launder illicit funds or finance illegal activity.
The Senate Banking Committee and a subcommittee of the House Financial Services Committee each plan to hold hearings next week at which lawmakers expect to question bank regulators on whether federal oversight of Riggs has been effective enough. Some Riggs executives and board members worry that such questions from Congress will pressure regulators to impose fines, as they have warned they might do, on some current and former Riggs officers. Although Joe Allbritton has not been warned he might be fined, according to sources familiar with the matter, continuing publicity about Riggs's regulatory lapses has caused federal regulators to reconsider that decision.
Because of the Allbritton family's controlling interest, Riggs's annual meetings are typically sedate affairs with little dissension, and yesterday's meeting was no exception.
Evelyn Y. Davis, a newsletter editor and corporate governance reform advocate who owns shares in many companies and banks, sought to spark discussion of how management and the board of Riggs failed to see problems with Bank Secrecy Act compliance coming until it was too late. She also wanted to know how the account manager for Equatorial Guinea, a "low-level flunky," was able to increase the amount on a check made out to him by an Equatorial Guinean official.
"He forged it," Robert Allbritton said, adding that he couldn't discuss the details of the case while it is under investigation by federal authorities. Riggs fired the account manager, Simon P. Kareri, who ran its West African and Caribbean diplomatic business, in January. Jonathan Shapiro, Kareri's attorney, declined to comment on Allbritton's remarks yesterday.
In response to Davis's criticisms of board and management oversight, Robert Allbritton cited the bank's new hires, and added that "quite a few people have been fired," though he provided no further details on dismissals. He did not take questions from the media at or after the meeting.
Outside the historic Corcoran branch on Pennsylvania Avenue, where the meeting was held, shareholder Michael Aquilino, a former trust officer of Riggs who retired in 1988, said he would have liked more detail on how the regulatory problems were allowed to get so deep.
"But they are doing things that need to be done to correct it," he said. He said he had never considered selling his Riggs stock, which he has held for several decades of performance well below bank stocks in general. "Someday I'll hit the jackpot with them."
Staff writer Ben White contributed to this report.