ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, October 18, 1996 TAG: 9610180035
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
Signet Banking Corp. increased speculation about a possible takeover Thursday when it reported both lower earnings and a study leading to a major restructuring.
The earnings figures "don't help" even though lower revenue was expected, said Merrill Ross, who follows the banking industry for Wheat First Butcher Singer in Richmond.
She said Signet had high costs because of introducing its new "loan by check" program that has yet to produce revenue from increased loans. The company attributed the drop in revenue to increased reserves against loan losses.
Signet said it earned $29.6 million or 49 cents a share in the third quarter, compared with $30.1 million or 50 cents a share last year. It was the second consecutive quarter of flat returns for the company.
David West, an industry analyst with Davenport & Co., said Signet's results were close to his expectations, but an associate at Scott & Stringfellow said the earnings were a penny short of her estimates.
First Union Corp. of Charlotte, N.C., is widely reported to be interested in acquiring Signet, and analysts have said that Signet would have to improve its financial position to avoid being merged into First Union or another larger bank.
But analysts were surprised by Signet's announcement that it is undertaking what it called a "redesign" project to transform itself into a "national, information-based financial company."
Ross called the study "a defensive move" in an attempt to avoid a takeover. She said Signet officials believe in the future of "branchless delivery." She expects Signet to come out of the study shedding branches and other traditional features of banking.
The study won't begin for another six months and will last at least 18 months. Signet has retained Aston Associates, a financial services consulting firm, to assist in the program.
The study will lead to "substantial changes," Ross said. "I assume nothing will be sacred." But she said she did not know what the changes will involve.
West said the study shows the bank "feels it needs to do something." That aspect, and not just the earnings, leads him to wonder if Signet's long-term strategy should look toward an acquisition rather than continued independence.
He said he was surprised because Signet undertook a major organizational study just last year after it spun off its credit card business as Capital One Corp. And that decision, West said, was made after yet another study.
Still another study this soon "is a little surprising," West said.
Henry J. Coffey Jr., banking analyst with J.C. Bradford & Co. in Nashville, Tenn., joked that one of the reasons he doesn't follow Signet closely is the number of organizational studies it undertakes. "That's all they ever do," Coffey said.
LENGTH: Medium: 57 linesby CNB