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PNC agrees to buy troubled Riggs bank

PNC Financial Services Group Inc. announced an agreement Friday to buy Riggs National Corp. for about $779 million in stock and cash.
/ Source: The Associated Press

PNC Financial Services Group Inc. agreed Friday to buy Riggs National Corp., which is under investigation for allegedly failing to prevent, and in some cases fostering money laundering, for about $779 million in stock and cash.

Its Riggs Bank subsidiary, an old-line Washington institution with deep ties to the diplomatic community, has been sanctioned by federal regulators and is under congressional investigation for allegedly helping hide money for former Chilean dictator Augusto Pinochet and other lapses.

As part of the deal with the larger Pittsburgh-based PNC, Riggs will shed all of its diplomatic and international businesses — the source of its regulatory troubles.

PNC said it expects Riggs’ current regulatory issues to be mostly resolved before the deal closes, but the merger agreement gives PNC the right to walk away if significant new regulatory troubles arise for Riggs before then.

The Riggs name also will disappear and be replaced by PNC at the bank’s 50 branches in Washington, Maryland and Virginia.

“The Riggs we will acquire will not be the same as the Riggs of today,” PNC chief executive James Rohr said in a conference call with analysts. “We will be acquiring a clean company, to the best of our knowledge.”

Riggs was fined a record $25 million in May by federal banking regulators for alleged violations of laws against money laundering in its handling of cash transactions in Saudi-controlled accounts under investigation for possible links to terrorism financing.

Wall Street’s reaction to the deal was mixed. In trading Friday afternoon on the Nasdaq Stock Market, Riggs shares were up 10 cents at $22.77. PNC shares slipped $1.28 to $49.95 on the New York Stock Exchange.

PNC, with some 700 branches in five states and around $67 billion in assets, has had regulatory problems of its own.

Two years ago, it avoided a fine but was forced to face stricter federal scrutiny after the Securities and Exchange Commission questioned its accounting and record-keeping practices. The agency said that PNC tried to conceal $762 million in potential liabilities in 2001 by transferring them to three subsidiaries created specifically for that purpose.

The proposed merger announcement comes a day after senators investigating Riggs operations expressed outrage at senior bank officials’ failure to act while managers helped former Chilean dictator Augusto Pinochet conceal millions in assets and turned a blind eye to improper payments to officials of Equatorial Guinea.

Lurid details — such as a suitcase stuffed with cash — emerged at a Senate hearing into Riggs’ handling of the accounts. Lawmakers insisted it was impossible for high-level bank executives to be unaware of the actions.

In fact, the bank’s former chairman and chief executive, Joseph Allbritton, went to Chile to solicit Pinochet’s business a decade ago, and he and other senior bank officials were familiar with the transactions in Pinochet’s accounts, senators said.

Allbritton is a major business and social figure in the capital. He owns local television station WJLA and had owned the now-defunct Washington Star newspaper.

Although he recently resigned from the bank’s board, he remains the biggest shareholder. He agreed to vote 24.6 percent of Riggs stock in favor of the merger, PNC said.

His son, Robert Allbritton, is chairman and chief executive officer of Riggs National.

PNC said it was buying Riggs because of its prominence. Riggs is the largest bank based in the Washington area with $6 billion in assets.

“Riggs’s strong banking franchise gives us an excellent platform on which to build in the extremely appealing metropolitan Washington marketplace,” Rohr said in a statement.

Shortly after it was sanctioned in May, Riggs National said it had hired an investment bank to advise it on a possible sale.

PNC is offering $321 million in cash and 7.5 million of its common shares.

The boards of directors of both banks unanimously approved the deal, PNC said.

Riggs earned $3.9 million in the first quarter, down from $5.9 million a year earlier. Annual earnings have not exceeded $25 million since 1999.

PNC Financial has its roots in traditional banking dating back to the 1800’s, but has moved into a variety of financial services. Its flagship remains PNC Bank, which operates in Delaware, Kentucky, New Jersey, Ohio, and Pennsylvania. It had annual revenues of nearly $6 billion last year.