Scandals beset D.C.'s 'bank of presidents'
By Steve Massey, Pittsburgh Post-Gazette
Saturday, July 17, 2004
Perhaps it's only appropriate that the same day that domestic diva Martha Stewart was sentenced to prison, Washington's Riggs National bank agreed to be bought. Both are celebrated names whose reputations have been so sullied by recent actions that they'll never be the same.
In fact, Riggs will be no more, losing its name when the deal with PNC Financial Services Group closes sometime early next year, assuming there are no hitches. It will mark an ignominious end to a moniker that, for the better part of the institution's 168-year existence, was synonymous with power, prestige and prominence in Washington.
Riggs had always been the bluest of the blue bloods in the nation's capital, a self-described bank of presidents that catered to government leaders and the Beltway establishment. By its own count, at least 21 first families have been customers, including Abraham Lincoln, as well as dignitaries dating to Francis Scott Key and Davy Crockett. Samuel Morse's telegraph, the Alaska Purchase and the U.S. Capitol were financed through Riggs.
In more recent decades, Riggs turned its attention to serving embassies, emissaries and overseas American consulates as the nation's mounting global prominence made Pennsylvania Avenue and its environs a necessary address for other countries. It used private jets to fly people around the world, and its largest shareholder, former longtime CEO Joseph L. Allbritton, was a fixture at Capitol Hill cocktail parties and a philanthropist without peer.
"It was clearly very much of a white-glove culture," said Kenneth H. Thomas, a Miami-based banking consultant and banking professor who runs Branchlocation.com.
"This bank is not just for the wealthy, but for the very special. Like in Hollywood when you say the bank for the stars, when you say Riggs Bank, this is the bank for famous people."
The danger of sitting on such a rarefied perch, of course, is that if a fall comes, it can be a big one. For Stewart, it ultimately meant a jail sentence in an insider trading case that many criminal defense attorneys and even some prosecutors say didn't amount to all that much, certainly not to the level of public vilification Stewart has received.
Time will tell whether there will be prosecutions and jail sentences in the Riggs case. A Senate inquiry made public this week accused the bank of ignoring evidence of widespread money laundering and corruption involving U.S. oil companies and the first family of Equatorial Guinea, and of helping former Chilean dictator August Pinochet hide millions from authorities.
Reports said the investigation included such details as suitcases of shrink-wrapped cash being walked through Riggs Bank's front door in Washington and Allbritton's direct involvement in courting Pinochet at a time the Chilean dictator was under house arrest in Britain on charges of human rights abuses, his assets supposedly frozen.
The Senate investigation's findings come on the heels of actions taken against Riggs in May, when federal regulators fined it $25 million for failing to report suspicious activity, the largest penalty ever assessed against a domestic bank over charges of money laundering. Regulators also restricted the bank's activities and put it under oversight.
PNC, which itself recently lived under the cloud of government oversight after an accounting debacle that artificially inflated profits in 2002, acted quickly yesterday to distance itself from Riggs' problems. It noted that it can walk away if any regulatory unpleasantness arises and that the deal calls for Riggs to exit the international banking operations that got it into hot water.
Still, the move is not without risks for PNC. Indeed, some question why it's doing the deal at all, noting that Riggs is a lot more flash than substance when it comes to the bread-and-butter business of retail banking.
"My initial thought when I heard PNC was among four potential bidders was, 'PNC can't possibly be thinking about this,"' said Arnold G. Danielson, a Rockville, Md., banking consultant who has a front-row seat to the market. Outside of its trust operations, "the rest of Riggs' so-called banking franchise has frittered away to nothing."
Riggs does hold a leading 23 percent share of deposits in Washington, D.C., according to the Federal Deposit Insurance Corp., just ahead of Charlotte, N.C.-based Wachovia Corp. But its deposits have slipped more than 20 percent in the past year because of the scandal, and in the broader, more lucrative metropolitan market, Riggs' share trails far behind the leaders.
In Danielson's opinion, all of the out-of-town banks have done a better job of running and growing their retail banking operations than has PNC, which is Pennsylvania's and Pittsburgh's largest bank but has seen its deposit share in both markets slip a bit since 2000. "D.C. is a difficult, aggressive market," he said.
It doesn't help that PNC will be taking over a bank known for serving the elite in hopes of making it more of a bank for the masses. "In some ways, Riggs is incongruous with the image of a PNC, which is more a bank of the working people," said Thomas, the Miami banking consultant.
Danielson theorizes that PNC may be making the move on a sick Riggs as a way to show it's a player again, something it hasn't really been in a big way since the late 1980s, when its banking star was as bright as any of the so-called super regional banks.
(Steve Massey can be reached at firstname.lastname@example.org or 412-263-1174.)
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