ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, May 29, 1996 TAG: 9605290113
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: RICHMOND
SOURCE: ASSOCIATED PRESS
Signet Banking Corp. held a problem-free shareholders meeting Tuesday, despite a loan fraud that lowered the bank's earnings by $35 million last year.
The bank is facing lawsuits of more than $105 million from other banks because of the fraud and had been facing a shareholder lawsuit.
Signet's president and chief operating officer, Malcolm S. McDonald, said that the fraud was a ``severe disappointment but not a roadblock'' to the bank's continued expansion.
Shareholders asked no questions about the fraud, re-elected the company's 12 directors, approved a stock option plan for nonemployee directors and ratified Ernst & Young as the company's independent auditors.
Former Phillip Morris employee Edward J. Reiners is charged with defrauding Signet of $81 million. Reiners is accused of posing as a Philip Morris executive and persuading the bank that the tobacco giant needed millions of dollars for a secret project.
Signet and several other U.S. and foreign banks lent Reiners a total of $323.5 million.
Signet is being sued by Philadelphia-based CoreStates Financial Corp. for $18 million, and by the Bank of Montreal for $87.3 million for negligence for not discovering that Reiners no longer worked for Philip Morris.
A shareholder had also brought a lawsuit demanding that the board of directors repay the money that was lost. McDonald said that the lawsuit has been withdrawn.
Signet readjusted its 1995 earnings by $35 million because of the fraud. McDonald said the company hoped to recover about $46 million of the stolen money.
``It was an extraordinarily clever fraud,'' said outgoing chairman and chief executive officer Robert M. Freeman. ``It's very difficult to prevent.''
``It will have no long-term impact,'' said Vernon Plack, an analyst with Scott & Stringfellow Inc., a Richmond securities broker. ``It's an unfortunate, and I believe a one-time event. It does not speak of any underlying problems.''
Plack said that the bank was doing very well and was transforming itself from a regional bank into a nationwide provider of financial services.
He said Signet has developed a statistical approach to lending that has allowed it to become a national player in student loans, mutual funds, home equity lines and investment wrap accounts.
``Signet's earnings should grow twice as fast as the rest of the banking industry,'' Plack said.
In the first quarter of this year, the bank's earnings rose 16.8 percent compared with the same period last year. Profit for the quarter ending March 31 was $31.2 million, or 52 cents per share, compared with pro-forma earnings of $26.7 million, or 45 cents per share, in the 1995 period. McDonald said that the most important event for the company in 1995 was the decision to spin off its profitable credit-card business, Capital One Financial Corp.
The bank, which has assets of $12 billion, has branches in Virginia, Maryland and Washington, D.C.
LENGTH: Medium: 71 lines ILLUSTRATION: PHOTO: AP Outgoing Signet Bank Chairman and CEO Robertby CNBFreeman (left) called a former Philip Morris employee's efforts to
defraud the bank of $81 million "clever," but bank President Malcolm
McDonald said it was "not a roadblock." color.