Pittsburgh bank to buy ailing Riggs

PNC Financial to pay $779 million in cash, stock

No. 1 bank in Washington is sold

Buyer may want to make other acquisitions in area

July 17, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

PNC Financial Services Group Inc.'s $779 million deal to buy embattled Riggs National Corp., Washington's biggest bank, could signal a major shift in the competitive landscape in the Mid-Atlantic.

The deal gives the Pittsburgh banking company entree into the wealthy Washington area - including its Maryland suburbs.

It also marks the second time that a regional bank has been sold after becoming mired in scandal. Riggs is under congressional investigation for allegedly failing to prevent, and in some cases aiding, a money laundering scheme involving foreign governments and diplomats.

Last year, Allied Irish Banks PLC sold Allfirst Financial Inc. of Baltimore after a rogue currency trader racked up more than $691 million in concealed losses.

With the merger, PNC scoops up 50 branches: 29 in Washington, 15 in Virginia and six in Maryland, which will bear the PNC name after the sale closes, expected early next year. PNC said the cash-and-stock deal is valued at $24.25 a share based on PNC's Wednesday close of $51.70.

Shares of PNC closed yesterday at $50.56, down 67 cents, while shares of Riggs gained 5 cents to close at $22.72.

"This acquisition gives PNC a market-leading entry point into an extremely attractive set of business opportunities," James E. Rohr, chairman and chief executive of PNC Financial Services Group, said in a conference call with analysts and investors yesterday. "This transaction is a clear strategic win for us."

The deal comes amid stunning revelations about Riggs, a 165-year-old Washington institution whose customers have included numerous U.S. presidents.

On Wednesday, a U.S. Senate committee investigating Riggs revealed that the bank helped former Chilean dictator Augusto Pinochet hide millions of dollars in assets from international investigators while he was under arrest for "crimes against humanity."

In May, Riggs was fined a record $25 million by a federal banking regulator for violating anti-money laundering laws in its handling of Saudi-controlled accounts. Millions in cash transactions involving those accounts are now under Senate investigation for possible links to terrorist operations.

Rohr said PNC had met with regulators and conducted extensive due diligence to ensure that it would not inherit any of Riggs' problems. Riggs' money-losing international business will be divested and its troubled embassy business will be sold off before the acquisition is final, he said.

"The Riggs that we will acquire when we close next year will not be the same as the Riggs of today," Rohr said. "What will be left will be a very high quality banking franchise."

Karen Petrou, managing partner of Federal Financial Analytics, a consulting firm in Washington, said U.S. regulators likely forced the sale. A "howitzer" likely was pointed at the heads of Riggs banking executives to do a deal, she said.

Several banks were reportedly in the running for Riggs, including Mercantile Bankshares Corp. of Baltimore and M&T Bank Corp. of Buffalo, which gained substantial operations here after its acquisition of Allfirst last year.

Officials from both banks declined to comment on whether they bid for troubled Riggs, which once ran an ad billing itself as the "most important bank in the most important city in the world."

PNC, a diversified financial company with $74 billion in assets and operations in seven states from Pennsylvania to Florida to Indiana, plans to build Riggs, which has $6.2 billion in assets.

PNC executives like the Washington market because of its demographics: The metropolitan area's unemployment rate is among the lowest in the country. It's also fast growing and is the fifth-wealthiest in the country.

"The expansion ... will serve as an excellent additional platform on which we will build the future of PNC," Rohr said. He said the company plans a "substantial investment ... to expand the Riggs franchise."

PNC also will continue with Riggs' plan to open 30 new branches in Maryland and Virginia.

In addition, the company plans to add an array of offerings ranging from wealth management and commercial real estate services and products, to business banking and treasury management.

"With Riggs, we are coming in with a big head start," Rohr said.

Some experts believe the deal alters the competitive equation in the Baltimore/Washington market and puts in play locally based banks such as Mercantile, Provident Bankshares Corp., Columbia Bancorp and Sandy Spring Bancorp.

Arnold Danielson, chairman of Danielson Associates, a Rockville consulting firm specializing in banks and thrifts, said PNC will likely have to make more acquisitions to compete in a market where it is not well known. Out-of-state banking giants Bank of America Corp, BB&T Corp., SunTrust Banks Inc. and Wachovia Corp have already carved up the market.

"It brings a buyer in for Mercantile, for Provident, for Columbia," Danielson said. "This livens the market up."

Collyn Bement Gilbert, a banking analyst at Ryan Beck & Co., agreed. "Inevitably I think this would cause them [PNC] to expand via other acquisitions," she said.

Some think the deal could provide some breaks for Baltimore banks in the short term.

"There might be some opportunities in the D.C.-area for ... companies like Mercantile to expand some of their presence and grab some customers of Riggs," said Gerard Cassidy, a banking analyst at RBC Capital Markets in Portland, Maine.

Local bankers said they aren't concerned that another mega-bank is coming into the area.

"I am not sure at the end of the day it makes it any tougher than it has been," said Edward J. Kelly III, Mercantile's chairman and chief executive. "We are very optimistic about our prospects and intend on remaining independent."

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