ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, April 28, 1996 TAG: 9604270012
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: RICHMOND
SOURCE: MARTHA SLUD ASSOCIATED PRESS
Signet Banking Corp., considered a rising star in banking, is trying to continue its ascent from a regional bank to a nationwide lender while it deals with some embarrassing problems.
A multimillion-dollar loan-fraud case - allegedly perpetrated by a man posing as a Philip Morris Cos. executive - has focused attention that the Richmond-based bank would rather do without. The company is on the forefront of a banking movement that relies on ``information-based marketing strategies'' to sell installment loans, home equity lines and other consumer products through the mail.
Bank analysts say the fraud case should have little long-term effect on those plans, although some are advising investors to be cautious for a while because Signet may face litigation costs.
``I don't think it's a bad idea to stay somewhat on the sidelines, at least in the near term,'' said David West, a banking analyst with Davenport & Co. in Richmond.
A former Philip Morris employee is accused of defrauding Signet of up to $81 million by convincing bankers he needed loans for a super-secret cigarette research project. Other banks that also took on loans include NationsBank Corp. of Charlotte, N.C., CoreStates Financial Corp., Bank of Montreal in Canada, Creditanstalt-Bankver-ein of Vienna, Austria, and the Long Term Bank of Japan.
The FBI says it caught Edward Reiners of Somers, N.Y., and his alleged accomplice, Judy Bachiman, of Cliffside Park, N.J., after the Japanese bank questioned a loan document and other banks got suspicious. The banks had extended a total of $323.5 million in credit, the FBI said.
Signet's chairman and chief executive officer, Robert M. Freeman, declined to be interviewed about the bank's involvement and its impact.
But publicly, Signet said it has adjusted its 1995 earnings to account for an estimated $35 million loss in the case. The company postponed its annual shareholders meeting from April 23 until May 28 because of the financial reporting delays.
And a shareholder in Fairfax has filed a lawsuit alleging the bank's board of directors was negligent and should reimburse the bank for the money it lost.
West and Vernon Plack, an analyst with Scott & Stringfellow Financial Corp. of Richmond, attached little significance to the shareholder suit. They said there's no indication the alleged fraud stemmed from an internal management problem.
Despite the recent trouble, Signet has a lot of things going for it, the analysts said.
The bank, which has branches in Virginia, Maryland and Washington, D.C., and assets of $12 billion, boasts of its sophisticated databases that enable it to ``design, test and refine'' its marketing programs and reach new customers throughout the country first.
``This is something quite frankly that should have been done by a lot of organizations, not only banks, a long time ago,'' Plack said. ``I don't think any other bank compares.''
The bank also has been responsive to shareholders, said Paul Getman, managing director of Regional Financial Associates, a West Chester, Pa., consulting firm that follows banking.
Signet spun off its profitable credit-card business, Capital One Financial Corp., to the approval of shareholders in February 1995. Getman said the company's stock was not trading as high on Wall Street as it could have if the credit-card unit were split from the banking company.
Capital One reported profit of $38 million for the first quarter, up 51 percent from the same period last year.
``I think it's paid off very well,'' Getman said of the spinoff.
If Signet is in the news again, it likely will be as a takeover target, Getman said.
``They have a very attractive position in a very good location,'' he said.
LENGTH: Medium: 75 linesby CNB