Riggs Pulled Up Short by Realty Slump
WASHINGTON -- As a banker and a racehorse owner, Joe Allbritton's winning streak may be drawing to an end.
When Mr. Allbritton's champion thoroughbred Hansel pulled a tendon last month coming down the homestretch at Saratoga, N.Y., it seemed almost symbolic. After all, Mr. Allbritton's other treasured asset -- Riggs National Corp. -- has been limping for well over a year.
Profits from D.C. Realty
Located just a block from the White House, Riggs National was once a source of great pride for Mr. Allbritton. He not only runs the bank as chairman and chief executive officer, but he owns a 35% stake. Riggs regularly churned out solid profits, in large part by aggressively financing Washington real estate projects.
Noting that Riggs was the largest bank based in Washington, he proudly billed it as the "most important bank" in the city.
But with the region's real estate hitting the skids over the past two years, Riggs has posted more than $60 million in losses. And matters don't seem to be improving much.
Mr. Allbritton has already trimmed staff by 291, or 11%, and shrunk the banking company's assets by about 15%, to $5.6 billion. Even Mr. Allbritton, who is 66, took a pay cut, trimming his annual compensation to about $1 million from $1.4 million.
More bad news may be in the offing. Riggs acknowledges that it may soon have to put an additional $48 million of loans on its problem list. On top of that, the Federal Reserve has asked Riggs to shift $40 million in capital to its lead bank, Riggs Bank of Washington, according to a 10-Q form recently filed with regulators. In addition, Riggs has had to delay a plan to raise $50 million through a stock offering. Riggs shares have sunk to about $7 from a 52-week high of $15.
"The financial position of the bank is shaky," said John B. Works, an analyst with Keefe, Bruyette & Woods Inc. "They are thinly capitalized, they are thinly reserved, and their non-performing assets are rising."
Indeed, nonperforming loans jumped to $382.2 million in this year's second quarter, an increase of $274.9 million from 12 months earlier. Right now, such nonperformers make up 11% of all loans and other real estate owned.
Analysts don't believe Riggs is going to fail, because it has $2.1 billion in liquidity, which would enable the company to meet deposit withdrawals. Also, Mr. Allbritton is viewed as a backstop. The wealthy entrepreneur owns several television stations, a newspaper, a life insurance company in California, and a small bank in Texas.
Capital Shortage Seen
But the analysts suggest that Riggs will need some additional capital, whether from an outside buyer or from the postponed $50 million stock offer.
"Their ability to return to normal capitalization is so difficult it looks like they will have to sell," said Arnold G. Danielson, president of Danielson Associates Inc., a bank consulting firm in Rockville, Md.
"It [selling] is an option that they probably should consider. Their profitability has been impaired significantly," said Mr. Works of Keefe Bruyette.
Mr. Allbritton declined to be interviewed for this article, and a Riggs spokesman, David Palombi, said Mr. Allbritton has no intention of selling out.
"For the past 10 years he has said he is not a seller of stock, and that remains true today," Mr. Palombi said.
He noted that Riggs has in place a plan to shrink the bank, trim expenses, and increase fee income. Riggs' leveraged capital ratio was 4.26%, above the government's 3% minimum, and would be 5.10% if $50 million could be raised. "I think it is an error to say we are thinly capitalized," he said.
Nonetheless, the capital standards under which Riggs operates aren't getting any easier. By next year, the regulators are expected to require weak banks to maintain a leveraged ratio ranging from 4% to 5%.
Loss Estimates Up to $2 a Share
Moreover, loan problems could continue to eat up the bank's equity. Keefe is warning investors to avoid Riggs' stock. In fact, Keefe recently revised its 1991 estimates for Riggs from a loss of 50 cents a share to a loss of $2 a share.
Wheat, First Butcher & Singer, a brokerage firm in Richmond, expects the bank to lose at least $1, and stopped following the institution a month ago.
"I don't think they have begun to address all of the problems they have got," said Anthony R. Davis, a bank analyst with Wheat First.
"It seems like Riggs is going to have its feet stuck in the mud for quite some time," added John Bailey, an analyst with Ferris, Baker Watts Inc., who has advised investors since springtime to sell their Riggs shares.
As Washington's real estate slump continues, people are wondering whether Mr. Allbritton will stand pat, kick in more capital, or -- despite his denials -- sell off his once prized asset. After all, that's what he did with Hansel two weeks ago.
PHOTO : HAPPIER TIMES: Riggs CEO Joe Allbritton accepts trophy after his horse won the Belmont.
PHOTO : TRIUMPHAL MARCH: Mr. Allbritton leads Hansel, ridden by Jerry Bailey, to the winner's circle after their Belmont victory.