Looking to reposition itself as national direct marketer of financial services, Signet Banking Corp. on Tuesday unveiled a sweeping overhaul of its branch structure, business lines, and technology.
The $12 billion-asset banking company, based in Richmond, Va., said it intends to slash a quarter of its full-time positions and sell or close one-fifth of its branches by the end of 1998.
The massive overhaul should cut $58 million in expenses and add $10 million in revenue over the next year and a half, Signet said. The bank said it will take a $57 million pretax charge in the second quarter to cover the restructuring, which has been eight months in the making.
Signet officials said the changes-which they termed a "redesign"-will help the bank significantly increase profits over time.
"We don't want to be bounded by geography," said Malcolm S. McDonald, Signet's chairman and chief executive officer, in a telephone interview. He said direct-mail marketing of financial services nationwide "will be the biggest area in the future where our revenue will come from."
He said the bank's revenue growth, while solid, wasn't translating into the strong earnings growth needed to fund aggressive technology investments. Signet earned $33 million in the first quarter, just a shade above $31.2 million in the comparable period of 1996.
The restructuring plan calls for a $41 million investment in new technology over the next year and a half. Signet plans to put a new, standardized customer service operation at the core of its future strategy.
Signet has struggled with below-average profitability since the early 1990s, but a successful credit card unit long masked many of the problems. When the card unit was spun off in 1995 as Capital One Financial Corp., the bank lost a much-needed revenue stream that it has not yet replaced.
"This is Signet's final effort to turn this institution into a high performer," said Scott & Stringfellow analyst Vernon C. Plack. "If after this restructuring Signet does not perform at a higher level, then the institution becomes very vulnerable."
Signet officials said the bank expects to have a return on equity of between 17% and 20% by yearend 1998. The bank's ROE is now 14.44%.
Signet also hopes to increase earnings per share by 15% and to have an efficiency ratio of 50%, compared with its current 62.27%.
Though the changes should slice Signet's bloated cost structure, the company still has yet to show that its national strategy will add significant value, said Moshe A. Orenbuch, an analyst at Sanford C. Bernstein.
"It's a big improvement, but they still have work to do," he said.
Mr. McDonald countered that the company is already well on its way: Signet has more than $1 billion outstanding through its loan-by-check program that uses national direct mail to make instant loans and $550 million of deposits from a new nationwide product launched a few months ago.
The sweeping changes at Signet are the results of a lengthy evaluation led by the Aston Associates consulting firm. More than 100 Signet executives were involved in the redesign, which generated 3,900 ideas from employees.
But personnel cuts have been deep. Of the 1,135 job cuts, 327 came from layoffs made before Tuesday's announcement. Those firings represent about 7.5% of Signet's full-time work force of 4,400.
The company said the impact on workers should be softened by generous severance packages and voluntary leave options. Branch sales would account for 165 of the positions to be cut. A hiring freeze eliminated 311 positions, and 156 employees have taken voluntary separation packages. About 176 jobs are expected to be lost through attrition.
The cuts have run up and down the ranks at Signet, though no member of the company's management committee was eliminated, said Mr. McDonald.
Signet's new structure is divided into 12 functional areas organized around customer segments. Three newly created areas are specialty commercial, corporate relationship banking, and small business.
Some changes include the consolidation of sales and service functions in handling corporate customers. Private banking and personal trust will be consolidated for private clients; student loan processing and facilities management will eventually be outsourced; and vendor management and procurement will be centralized.
