THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, May 29, 1996 TAG: 9605290421
SECTION: BUSINESS PAGE: D2 EDITION: FINAL
SOURCE: BY JAN CIENSKI, ASSOCIATED PRESS
DATELINE: RICHMOND LENGTH: 49 lines
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 non-employee directors and ratified Ernst & Young as the company's independent auditors.
Former Philip 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 a group of other banks lent Reiners $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 McDonald said that the lawsuit has been withdrawn.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 that 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 of Richmond. ``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.
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.
KEYWORDS: LAWSUIT by CNB