THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, March 21, 1996 TAG: 9603210360
SECTION: FRONT PAGE: A13 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 85 lines
Reacting to an alleged scam involving up to $323 million in loans, NationsBank, Signet Bank and other banks insisted Wednesday that the impact on their earnings and financial health would be negligible.
Signet disclosed Tuesday that it could lose as much as $81 million on loans to a company that passed itself off as a research subsidiary of Philip Morris Cos.
After conferring with federal law enforcement agencies, Richmond-based Signet said Wednesday that it expected to recover a ``substantial'' portion of the $81 million.
``We are still trying to put together pieces of the puzzle,'' said Teri Schrettenbrunner, a Signet spokeswoman.
NationsBank, a Charlotte-based bank with a major presence in Richmond, said it had $60 million in loans to the company in question, Worldwide Regional Exports.
``The actual losses, if any, should be less'' because of what the bank expects to recover, said Lynn Drury, a spokeswoman in Charlotte.
NationsBank, she said, has adequate existing reserves to cover the possible losses.
Another lender, Philadelphia-based Core States Bank N.A., said its potential losses amounted to less than $20 million.
``In the event that there are any losses on these loans, we have very adequate reserves to cover them,'' said Gary Brooten, a Core States spokesman.
Bank of Montreal, the 10th largest bank in North America, said its losses could amount to $87 million. ``It's not expected to have a material impact on our earnings,'' spokeswoman Marci Kaminsky said.
But disclosures of their possible losses on what appeared to be fraudulent loan documents raised questions about the quality of the banks' internal controls and their lending policies.
``It goes back to the old line about knowing your customer,'' said Vernon Plack, a banking analyst with the brokerage firm Scott & Stringfellow Inc. in Richmond. ``I would guess that there will be operational changes at Signet, NationsBank and other institutions.''
Signet said it was still investigating the situation but was satisfied with its credit policies.
The U.S. Attorney's Office in Richmond said Edward J. Reiners of Somers, N.Y., and Judy Rose Bachiman of Cliffside Park, N.J., had been arrested in Rye Brook, N.Y., Tuesday on charges of bank fraud.
Seven banks and financing companies participated in the loans to the alleged research subsidiary, Worldwide Regional Export, according to an affidavit filed in U.S. District Court in Richmond Tuesday. Other participants included Hitachi Credit America Corp., Signet Leasing and Credit Anstalt.
Nelco Ltd., a Richmond company that Worldwide claimed it was using for its computers, said Wednesday it had not been implicated in the possible fraud.
``As one of the victims of this alleged fraud, Nelco Ltd. is cooperating fully with the FBI and will continue to do so,'' the company said in a statement. ``It is important to recognize that Nelco has not, repeat, has not been charged with any irregularities.''
Plack, the Scott & Stringfellow analyst, described the computer-leasing scheme as material for a made-for-TV movie. ``It's unbelievable that someone would try to do this,'' he said.
Still, he understood why bankers would have gone along with the loan application, Plack said. ``You're talking about one of your better clients, Philip Morris,'' he said.
In addition, the individual who passed himself off as responsible for the Philip Morris overseas research operations had been employed by that company, he said.
Plack estimated that Signet's parent company, Signet Banking Corp., stood to earn $2.30 a share for 1996 and that its possible losses on the problem loans could reduce that amount by 85 to 90 cents.
Shares of Signet Banking Corp. fell 3/4 Wednesday to 24 1/2 in heavy trading. Plack described the decline as modest. ``If their stock was down three or four points, I'd be concerned,'' he said.
Shares of NationsBank Corp. ended the day unchanged at 75 1/8.
Plack said he expected NationsBank to earn $7.95 a share this year and that its possible loss on the computer-leasing loans might cut that by 15 cents. MEMO: Staff writer Warren Fiske contributed to this report.
[For a related story, see page A1 for this date.]
KEYWORDS: BANK FRAUD PHILIP MORRIS by CNB