Riggs National Corp. yesterday said second-quarter losses ballooned because of the costs of dealing with an ongoing money-laundering scandal.
The D.C. banking company lost $34.4 million ($1.18 a share) in the three months ended June 30, compared with a profit of $1.8 million (6 cents) in the same quarter of 2003.
More than $42 million in unusual expenses were incurred during the quarter, including a $25 million federal fine in May for failing to properly monitor several high-risk embassy accounts to protect against money laundering.
In addition to the fine, Riggs said, it spent about $7.2 million on dealing with the regulatory fallout and improving its money-laundering compliance. About $10.2 million in "realignment" costs were incurred from Riggs's plan to get out of its embassy and international banking businesses. More hits to the bottom line are likely; Riggs said that if it doesn't find a buyer, it would take an additional $8 million to $11 million to wind down London and Channel Island operations that helped serve embassy and international customers.
The largest single realignment cost was a $7.9 million write-down of the value of Riggs's private jet, a 1998 Gulfstream V. The aircraft was acquired to be used in the service of Riggs's international business, though the company regularly paid for its largest shareholder and former chairman, Joe L. Allbritton, to use the aircraft on personal business. Riggs said the 14-passenger jet, considered among the top of the line in corporate aircraft, is under contract to be sold for $28.3 million.
Riggs agreed in July to be acquired by Pittsburgh's PNC Financial Services Group Inc. for about $700 million in cash and PNC stock. The deal is expected to close in the first quarter of 2005.
Aside from the unusual expenses, Riggs's core operations were less profitable than they were a year ago. The company's net interest income, a key measure of the profitability of loans and other assets, declined by 11 percent. Riggs borrowed heavily from the Federal Home Loan Bank in the quarter to fund embassy deposit withdrawals; such borrowings are typically more expensive than paying depositors for the use of the money in checking accounts.
Riggs has said it had a total of about $1 billion in deposits from about 100 embassy customers at the beginning of the year. A source with knowledge of the matter, but who spoke on condition of anonymity because of the sensitivity of the information, said about half of that business has moved to other banks. But a quirk of timing, and the difficulties several embassy customers had in finding new banks this summer, resulted in the change having limited impact on Riggs's balance sheet. In particular, $500 million from Equatorial Guinea's oil extraction contracts was still sitting in Riggs vaults on June 30, even though the bank had formally ended the bank-client relationship in March.
The source said the money was in the form of a cashier's check. A source close to the Equatorial Guinean Embassy here said the country has found a place for the oil funds in an overseas institution.
Riggs spokesman Mark N. Hendrix would not comment on any specific customer relationship but said the company continues to wind down its embassy business as part of Riggs's strategy to focus on consumer banking.
For the first six months of the year, Riggs lost $30.5 million ($1.05), compared with a profit of $7.7 million (27 cents) in the first half of 2003. Total assets declined from $7.2 billion to $6.7 billion.