PNC, Riggs Reconsider

Updated from 11:25 a.m. EST

PNC Financial(PNC Quote - Cramer on PNC - Stock Picks) is buying scandal-tarred Riggs National(RIGS Quote - Cramer on RIGS - Stock Picks) after all.

Just days after Riggs called off the planned merger and sued PNC for trying to negotiate a lower price, the banks announced Thursday that the deal was done on the terms largely sought by PNC.

In the new deal, PNC will pay about $652 million, or $20 a share, for Riggs, a 27% discount to the original merger price of $779 million, or $27.25 a share. The Pittsburgh-based lender had sought to slash the acquisition price to $19.32 before the talks collapsed last weekend.

PNC sought to reset the price after Riggs pleaded guilty last month to a criminal charge of failing to report suspicious transactions to bank regulators, stemming from its past dealings with former Chilean dictator Augusto Pinochet. In the plea agreement with federal prosecutors, Riggs is expected to pay a $16 million fine.

Riggs' deal with federal prosecutors closed the book on a sordid chapter in the history of the 179-year-old bank with 50 branches in the Washington metropolitan area. Some bank analysts have wondered about the value of the branches in light of the scandal, noting that the bad publicity might cause some customers to move their money to other banks.

In fact, the financial situation at Riggs only has worsened in the wake of the scandal. Riggs said Monday that it expects to a report a fourth-quarter loss of $60 million, partly due to the various government fines and penalties.

In a research report Wednesday, Kathleen Bochman, an analyst with Gimme Credit, predicted that the deal would go through -- and that consummation might not be the best thing for PNC. Bochman said she was concerned about the PNC's "ability to successfully integrate Riggs' tarnished franchise" and worried that Riggs' financial situation had deteriorated since the deal was initially announced last summer.

Even with the plea agreement in the books, Riggs is still facing a number of lawsuits, including one filed by a group of Sept. 11 family members over the bank's role in providing financing to Saudi families. As part of a renegotiated deal, PNC had wanted Riggs to establish a legal reserve to cover the cost of any unsolved legal issues. There was no mention of any legal reserve in the joint press release issued by the banks Thursday.

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