Feb 8, 2005 4 min read

WASHINGTON (AP) – PNC Financial Services Group Inc.’s offer to buy embattled Riggs Bank collapsed in bitterness Monday as Riggs parent sued the regional bank for damages after PNC slashed its takeover bid by about 20 percent. The developments came after Riggs recently pleaded guilty to violations of a law to prevent money laundering. Uncertainty regarding those and other legal issues and declining deposits at Riggs branches rendered the bank less valuable for Pittsburgh-based PNC, analysts said.

“PNC is buying damaged goods and they understood that going into the transaction,” said Gerard Cassidy, an analyst at RBC Capital Markets. “The amount of damage has increased and it’s worse than the fines. The fines are the easiest part. The bigger question is the damage that is being done to Riggs’ reputation.”

Pittsburgh-based PNC had agreed in July to pay $24.25 in cash and stock – a total of about $779 million – for Riggs, an old-line Washington institution that had a near-monopoly on business with the capital’s diplomatic community.

But Riggs pleaded guilty on Jan. 27 to failing to report suspicious transactions in the accounts of foreigners, including former Chilean dictator Augusto Pinochet.

The bank agreed to pay a $16 million criminal fine on top of a record $25 million civil fine levied on the bank by a Treasury Department agency last May.

The plea agreement still needs the approval of U.S. District Judge Ricardo Urbina, who expressed some skepticism about the penalty’s adequacy at a hearing.

Riggs National Corp., parent of Riggs Bank, said Monday its board had unanimously rejected a reduced merger offer of $19.32 a share from PNC.

Calls to PNC spokesmen for comment were not immediately returned.

Riggs shares tumbled $1.40, or 6.6 percent, to close at $19.85 on the Nasdaq Stock Market.

PNC shares rose 38 cents to close at $54.58 on the New York Stock Exchange.

The parent of Riggs Bank said it has sued PNC because Riggs “had been damaged by PNC’s decision not to proceed with the merger after Riggs had devoted the last six months preparing for the merger and taking various actions at PNC’s insistence.”

Riggs said it was seeking damages, which it did not specify, or for an order that compels PNC to proceed with the merger under the original terms. The Riggs directors reportedly had demanded no less than $20 a share from PNC in the negotiations.

Former Riggs chief executive Joe Allbritton, a prominent business figure in Washington who acquired the bank in 1981 in a hostile takeover and built up the embassy clientele, resigned from the board last April after the regulators’ allegations of lax controls against money laundering came to light. While Allbritton transferred control of the bank to his son, Robert, several years ago, he has remained the company’s largest shareholder.

Robert Allbritton is the chairman and CEO of Riggs National as well as a director. Joe and Robert Allbritton and other family members stood to gain a total of some $300 million from the merger under the original terms.

Riggs also said Monday that it expected to report a loss of $60 million for the fourth quarter of 2004 and a full-year loss of $100 million, and that it is closing its London branch – the final step in the shuttering of its international operations. The estimated fourth-quarter loss takes into account the $16 million criminal fine that Riggs has agreed to pay in its plea deal with the Justice Department and $8 million in other legal costs.

Riggs had decided to shed its diplomatic and international businesses even before the deal with PNC. Under the deal, PNC had the right to walk away if significant new regulatory troubles arose for Riggs before completion of the merger.

“PNC knew that its revised terms and conditions would be unacceptable to Riggs,” Riggs said Monday in a statement. The bank said it was “particularly disturbed” by PNC’s insistence that it settle private lawsuits against it or set aside money for such settlements – “even though we believe these claims are without merit.”