Riggs National Corp. yesterday made it official that it will listen to offers to buy the company, a major reversal for a homegrown institution and its controlling shareholder, Joe L. Allbritton, after 20 years of steadfastly refusing to sell.
The holding company for Riggs Bank confirmed earlier news reports that it had hired investment bank Lehman Brothers Holdings Inc. to consider "strategic alternatives, which include a possible business combination with a third party."
Riggs's stock price rose 17 percent yesterday, reaching its highest point since 1998. Its trading volume on the Nasdaq Stock Market was the highest since 1996 as investors flooded into the stock, hoping for a buyout premium in the not-too-distant future. Analysts who follow Riggs, however, were cautious about any deal being reached with the bank, citing its regulatory problems and concentration of ownership in Allbritton hands.
Riggs declined to comment further, though Robert Siegfried, a public relations specialist hired by the company, said the decision to seek out potential buyers was not driven by any financial considerations. "Riggs is financially strong," he said.
A source familiar with the board's deliberations, who spoke only on the condition that he not be identified, said there was no specific reason for hiring Lehman Brothers. The source said that many board members thought, given the many challenges they faced, it would be wise to see what Riggs would go for. Joe Allbritton recently resigned from the board. His son Robert is chairman and chief executive.
Riggs was fined $25 million this month for failing to fill out paperwork required by anti-money-laundering laws. Riggs was cited by the Office of the Comptroller of the Currency for failing to report more than two dozen suspicious transactions in its embassy banking division, including tens of millions of dollars into and out of accounts associated with the embassies of Saudi Arabia and Equatorial Guinea. In addition to the fine, Riggs agreed to increased controls on its business. The comptroller's office has classified Riggs Bank as a "troubled institution," a status that forces Riggs to seek regulatory approval to pay dividends, appoint senior officers and pay severance agreements.
Because of the regulatory scrutiny, and because Riggs's operations offer relatively little in the way of attractive assets to a potential buyer, some analysts said investors may be disappointed if they are looking to make a quick buck.
"There are some serious questions to ask," said Henry J. Coffey, an analyst at Ferris, Baker Watts Inc. Coffey said the questions included whether Riggs would find a buyer at all, much less one willing to pay much more than market value.
Coffey said he believes Riggs will not attract the kind of price other banks are going for, given its current problems and its long history of lackluster operating results. For example, even after yesterday's run-up, Riggs's stock price is just 1.65 times its book value, or the net worth reflected on its balance sheet. Most bank acquisition prices are between two and four times book value. Mercantile Bankshares Corp. of Baltimore last year paid more than $500 million for F&M Bancorp of Frederick, a bank more than half Riggs's size, 2.6 times book value. As of yesterday, Riggs was worth just under $637 million.
"It's certainly not automatic that next Thursday we'll have a $28-a-share offer on the table," Coffey said. Riggs closed yesterday at $21.84, up $3.10.
Gerard Cassidy, bank analyst at RBC Capital Markets, said it was unlikely that a buyer would pay a premium. "The losses and problems need to be taken into account."
Cassidy said potential buyers for Riggs include Mercantile Bankshares, Royal Bank of Scotland Group PLC, BB&T Corp., M&T Bank Corp., Wachovia Corp., SunTrust Banks Inc. and Citigroup Inc.
Any deal would have to be accepted by the Allbrittons. Joe, his wife, Barbara, and son Robert control more than 40 percent of the company.
In another development, Russell D. Simmons resigned this week from his job as a senior vice president and director of the bank's business and community development division. Yesterday he also resigned as president of the board of the United Planning Organization, a Washington anti-poverty organization that has been under scrutiny for its financial dealings.
Staff writer Yolanda Woodlee contributed to this article.