Riggs ends dry spell with a 'buy' rating.

Riggs National Corp., still saddled with a load of problem loans. has garnered what appears to be its first buy rating in years.

Interstate/Johnson Lane cited the bank's cost-cutting efforts and new management in initiating its coverage with a "buy" rating last Friday.

Shares of Riggs, the last major independent bank in Washington, D.C., were up 12.5 cents to $8.375 on Monday after gaining 75 cents last Friday.

High Appreciation Predicted

Analysts John J. Mason and Christopher Marinac said they believe Riggs' shares may appreciate 60% in the next 18 months as its recovery gathers momentum. They also believe it will ultimately be acquired by a larger bank, which could mean a big payoff for shareholders.

The analysts said they are impressed with the reputation of Paul M. Homan, a former regulator who took the reins as Riggs' president and chief executive officer in June.

Mr. Homan previously led First Florida Banks Inc. The Tampa bank overcame problem loans and was bought by Barnett Banks Inc. for a hefty price equal to 2.4 times its book value per share.

Fourth Rescue Effort

Riggs, which has $5.2 billion of assets, is Mr. Homan's fourth banking rescue mission. Besides First Florida, he previously helped revive Nevada National Bank, Reno, and Continental Bank Corp., Chicago.

Mr. Homan has been "remarkably successful in fixing other problem banks," said the Interstate analysts. They urged clients to acquire the stock before an upcoming equity offering and while its market value is "less than the CEO's option price."

According to regulatory filings, Mr. Homan has an option to purchase 400,000 shares of Riggs stock at $8.125 per share. The option can be exercised if the stock trades at $12 per share or higher for 90% of the. trading days over a six-month period.

Heavy with Nonperformers

Riggs was hit hard by the downturn in the Washington-area real estate market and troubles at its British subsidiary, Riggs A.P. Loan problems appear to have finally stabilized, but remain a sky-high 8.1% of outstanding loans.

The bank reported a second-quarter net loss of $72.6 million, or $2.87 per share. The bank's management blamed high loan-loss provisions and restructuring charges for the loss.

But the analysts said they expect earnings to improve rapidly as provisions are lowered and expenses are reduced over the next several years. Mr. Mason said the first sign of improvement should be evident in the fourth-quarter earnings reports.

The analyst expects noninterest expenses at Riggs, after rising this year on restructuring charges, to fall significantly in 1994 and 1995. The bulk of the savings will stem from a reduction in staff. Head count is projected to be down 500 by yearend 1993, for annual savings of 15 million.

Earnings Forecasts

Mr. Mason projects a loss of $3.84 per share this year, but earnings of 45 cents in 1994 accelerating rapidly to $1.15 per share in 1995.

Riggs is expected soon to privately place $30 million of additional common stock and sell $70 million of preferred stock in a capital-raising effort.

With a 31% share of the market in the District of Columbia, and the best known local banking name, the anlysts think Riggs eventually will prove too tempting a buyout target for larger superregional banks.

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