Signet Banking Corporation

Abstract

This case investigates the alternatives that Signet Banking Corporation faced in 1995 as it attempted to restructure itself; the market perceived Signet to be undervalued, especially in light of the strong performance of its credit card division. Students must choose among several competing proposals to enhance shareholder value. Excerpt UVA-F-1221 SIGNET BANKING CORPORATION In July 1994, Wallace B. Millner considered the future of the Signet Banking Corporation. Having been an employee of the company for more than 20 years and currently serving as chief financial officer (CFO), Millner had seen the company survive its share of good and bad times. The U.S. economy was just coming out of a recession and Signet's earnings and stock price had both increased greatly in the past year. Although the bank had recently performed well, many cost-related problems in the core bank were masked by the tremendous success of the credit card division (CCD). Under the new and innovative management, the division had grown far beyond expectations and was a major catalyst in the turnaround of Signet's performance. Millner and other members of senior management were concerned, however, that the financial markets did not recognize the value of Signet's consolidated operations. It was their responsibility to ensure that the company's stockholders received the maximum return on their investment. Millner had to make a recommendation soon to Signet's board of directors on several proposed restructuring plans that could dramatically affect the future of the bank. Now the dilemma for Millner and the others was to determine which course of action offered Signet's shareholders the greatest value. Background of Signet Signet Banking Corporation was a registered bank holding company headquartered in Richmond, Virginia. At the end of 1993, the company had 239 offices located throughout Virginia, Maryland, and Washington, D.C. Based on total assets, Signet was the second largest bank holding company headquartered in Virginia and the 63rd-largest bank in the United States. Exhibit 1 gives a list of comparable Southeastern U.S. banks. Like the majority of other bank holding companies, Signet provided financial services such as consumer and commercial loans, checking and savings products, mortgages, and credit cards. The company focused its sales and expansion efforts in and around the markets in which it was located. Industry Background . . .