THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Thursday, July 28, 1994 TAG: 9407280537
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: By TOM SHEAN, STAFF WRITER
LENGTH: Medium: 67 lines
Signet Banking Corp., a pioneer in the credit-card industry, said Wednesday it will spin off its highly profitable card operations as a separate bank.
The new company, to be called OakStone Financial Corp., will be based in Fairfax County with operation centers in Richmond and Fredericksburg, Richmond-based Signet said.
The announcement drew a favorable reaction in the stock market, where Signet's shares climbed 2 1/4 in active trading to close at 39 3/4.
Signet's card operations generated almost two-thirds of the company's 1993 net income, which totaled $174.41 million, or $3.06 per share.
With 4 million card accounts and management of $6.6 billion in card loans, Signet ranks among the 15 largest issuers of MasterCard and VISA cards in the United States.
Signet said it expects to sell a 20 percent stake in the new credit-card bank through a public stock offering this fall. The remaining shares in its new bank probably will be distributed to Signet's existing stockholders by year end, it said.
Signet said it filed with the Securities and Exchange Commission for the public offering of shares in the new credit-card bank. The new company, it said, will apply for a listing on the New York Stock Exchange.
Signet also announced Wednesday that it will take a pre-tax charge of $60 million to $70 million against its third-quarter earnings to cover the costs of this separation and to restructure its core bank.
Part of the charge against earnings will cover the cost of early-retirement and employee-severance programs, the com pany said. Signet employs 8,000, including 2,000 in its card operations. Its Virginia bank has a regional headquarters in downtown Norfolk.
Richard D. Fairbank, the head of its credit-card division, will become chief executive officer of the new credit-card company and will eventually assume the additional post of chairman.
Signet's existing management will remain with Signet.
Signet disclosed earlier this year that it was studying the possibility of spinning off its card operations, so Wednesday's announcement came as no surprise in the financial community.
``Everybody has known that, in one form or another, we would see this'' separation, said David Stumpf, a banking analyst with the securities firm Wheat First Butcher Singer in Richmond.
``What surprised us was how quickly this is going to take place.''
The spinoff, said Stumpf, will benefit Signet's shareholders because the price of the company's stock has not reflected the full value of the card operations.
However, the separation will put pressure on Signet's core bank, which has registered lackluster results in recent years.
``They have been an underperformer largely because of a lack of focus,'' Stumpf said. Most of the management's attention, he said, had been concentrated on reducing Signet's troubled assets.
As part of the restructuring, Signet will apply some of the marketing and data-processing lessons learned in its card business to other areas, including student loans and mortgage lending, said Robert M. Freeman, Signet's chairman and chief executive officer.
Signet expects to complete the restructuring of its core banking operations within six months but has no plans to drop any lines of business or withdraw from any markets where it operates, Freeman said.
The company, he said, has not yet determined how many employees will retire or be separated. by CNB