- The Washington Times - Monday, February 7, 2005

The planned $779 million acquisition of troubled Riggs National Corp. by PNC Financial Services Group Inc. fell apart yesterday after PNC cut its takeover bid by about 20 percent and Riggs sued the Pittsburgh bank for damages.

The Washington bank, with roots dating back to 1836, said it might seek a similar deal with a different financial institution.

PNC reduced its offering price to $637 million, or $19.32 per share, after Riggs pleaded guilty Jan. 27 in federal court to failing to report suspicious transactions of account holders, including former Chilean dictator Gen. Augusto Pinochet and leaders of Equatorial Guinea.

PNC offered to add as much as 83 cents per share if Riggs’ civil litigation were resolved satisfactorily. In July, PNC said it wouldpay $24.25 a share.

However, PNC demanded that Riggs settle at least one private lawsuit and create a fund to pay for other litigation. Riggs said the lawsuits, such as a shareholder’s claim, should not interfere with the deal.

Shares of Riggs fell $1.40, or 6.6 percent, yesterday to $19.85 a share on the Nasdaq Composite Index.

Riggs agreed to pay a $16 million fine as part of the guilty plea. The agreement with federal prosecutors still needs the approval of U.S. District Judge Ricardo Urbina, who expressed some skepticism about the penalty’s adequacy at a recent hearing.

PNC representatives told Riggs officials the guilty plea created a “material adverse effect” on the acquisitionthat allowed the Pittsburgh bank to walk away from the deal under terms of the original agreement.

The agreement gave PNC, which is more than 12 times bigger than Riggs, the right to terminate the deal if significant new regulatory troubles arose for Riggs before the deal was completed.

“Since July, there have been numerous unexpected adverse developments at Riggs, including a criminal plea of guilty by Riggs National Bank,” PNC said.

The company also said Riggs faces “sizeable fines” and “a litany of legal and regulatory matters … along with other losses.”

The Riggs lawsuit, which was filed in District of Columbia Superior Court, says: “PNC has acted in bad faith and has sought improperly to coerce Riggs into waiving its contractual rights and renegotiating the merger agreement.”

Riggs seeks an unspecified amount of damages, which include six months of work to prepare for the acquisition.

Although Riggs spokesman Mark Hendrix refused to identify other banks with whom Riggs might negotiate another merger, he said, “We intend to do so.”

Industry analysts said other candidates that could buy Riggs include M&T; Bank, National City, Sovereign and Baltimore’s Mercantile Bankshares Corp.

“I would imagine there would still be a number of interested parties in Riggs,” said David George, bank industry analyst for the financial firm AG Edwards & Sons Inc. “My guess is the deal will get done, it’s just a matter of at what price.”

The 169-year-old bank had a near-monopoly on business with Washington’s diplomatic community, but eliminated all of its international business after it was accused of money laundering.

Riggs said yesterday that it expected to report a loss of $60 million for the fourth quarter and a full-year loss of $100 million, and that it is closing its London branch — the final step in the closing of its international operations.

The estimated fourth-quarter loss takes into account the $16 million criminal fine and $8 million in other legal costs.

Deposits at Riggs’ banks in the Washington area have fallen to about $3 billion as of Dec. 31 from $4.04 billion on Sept. 30, 2003.

The company has held accounts for at least 21 first families and presidents, including Abraham Lincoln and Dwight D. Eisenhower. It helped the U.S. government finance the purchase of Alaska from Russia for $7.2 million in 1867.

As of June 30, Riggs had about 9 percent of the deposits in Washington. It trailed Wachovia Corp., Sun Trust Banks Inc., Bank of America Corp. and Citigroup Inc., according to the Federal Deposit Insurance Corp.

Just a year earlier, Riggs controlled 23 percent of Washington’s deposits. It operates about 50 branch offices in the area.

“This criminal conviction may prevent certain customers from coming to the Riggs franchise, and if that’s the case, this deal needs to be revalued,” said Gerard Cassidy, an analyst at RBC Capital Markets.

• This story is based in part on wire service reports.

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