Jilted Riggs Bank Is Suing PNC
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Riggs National Bank, one of Washington’s oldest financial institutions now tainted by a failure to act against money laundering, filed suit against would-be acquirer PNC Financial Services Group yesterday after a merger between the two fell apart over the weekend.
On July 16, PNC agreed to acquire Riggs for $24.25 a share, or approximately $779 million, in order to gain a foothold in the Washington, D.C. market where Riggs operates more than 50 branches, and is formerly one of the area’s most prestigious banks.
The deal was thrown into question, however, when Riggs on January 27 pleaded guilty to hiding transfers of millions of dollars in accounts controlled by former Chilean dictator Augusto Pinochet and top officials of Equatorial Guinea, and agreed to a $16 million fine pending sentencing in March. Those criminal penalties came on top of a $25 million civil fine levied against Riggs in May for its dealings with the embassies of Saudi Arabia and Equatorial Guinea.
PNC in a statement yesterday cited those fines, plus “an exorbitant run rate of legal and compliance expenses related to a litany of legal and regulatory matters that Riggs continues to face, along with other losses” for attempting to restructure the deal. It said it has negotiated in good faith.
“The basic facts were well understood in July and the potential for Riggs to have a guilty plea was pretty much in evidence way back then,” said an analyst with Friedman, Billings, Ramsey in Arlington, Va., Gary Townsend. For whatever reason, PNC has become disenchanted with the nation’s capital, he said.
“PNC is an alphabet bank coming into a city filled with alphabet organizations. There was no particular cachet or great advantage that they would have competitively by coming into this market,” he said. Riggs is now so tainted that no one expects its name to exist after it is acquired, said Mr. Townsend.
An analyst with RBC Capital in Portland, Maine, Gerard Cassidy, added, “I think PNC was receiving a lot of grief from the investment community for doing the deal and looking for an opportunity to renegotiate.”
Riggs’ shares lost $1.40 yesterday to close at $19.85 in Nasdaq trading. PNC shares gained 38 cents to close at $54.58 in New York Stock Exchange trading.
