THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, March 23, 1996 TAG: 9603230239
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 63 lines
Deciding how to account for its losses on $81 million of potentially fraudulent loans could delay Signet Banking Corp.'s annual shareholders' meeting, the Richmond-based company said Friday.
The meeting, an event required of all publicly traded companies, had been scheduled for April 23 in Richmond.
However, legal requirements for the timely disclosure of financial information to shareholders may force the company to move back the meeting date, Signet said.
Signet, NationsBank Corp., Core States Bank, Bank of Montreal and a handful of other institutions lent more than $300 million to an operation that masked itself as a subsidiary of Philip Morris Cos., the tobacco and consumer-products producer, according to an FBI affidavit filed in U.S. District Court in Richmond on Tuesday.
Signet and other lenders had been told they were financing computers that Philip Morris would be using in a secret research program overseas, the affidavit said.
The FBI says the scheme, which got under way in late 1993, began to unravel last week when a Japanese bank participating in the loans sought additional information from Philip Morris about the loan documents.
The FBI arrested two people in Rye Brook, N.Y., Tuesday on charges of bank fraud and said Thursday that there may be other arrests.
Signet disclosed Tuesday that it stood to lose as much as $81 million on loans it thought it had made to a major corporation. The following day, the bank said it expected ``substantial recoveries'' on the loans.
In recent days, Signet has told securities analysts that some of the loan proceeds have been found in the form of marketable securities and have been seized.
However, Signet has not yet decided how or when to account for its losses on the loans, said Teri Schrettenbrunner, a spokeswoman for the bank.
``We've got a bunch of different scenarios on the plate, but no decisions have been made,'' she said. ``The challenge is estimating what the potential losses are.''
One possibility for Signet is to apply its loan-related losses to its 1995 earnings and restate its financial results for the full year. Another option is to apply the losses to its results for the first quarter, which ends March 31.
Signet expects to learn more from law enforcement agencies next week about how much it is likely to recover, Schrettenbrunner said.
Signet acknowledged that the $81 million lent in the alleged scam surpassed the bank's in-house loan limit of $50 million to a single borrower.
However, Signet remains satisfied with its credit practices and has not changed any of its lending procedures, Schrettenbrunner said. The $31 million that surpassed the in-house limit had been waiting for distribution to other banks that agreed to share in the loan, she said.
``We were following the guidelines,'' Schrettenbrunner said. ``The timing turned out not to be great.''
The price of Signet's shares closed at 24 3/4 Friday, up 3/8 for the day and 1/8 for the week. by CNB