A guilty plea by the man who improperly obtained a multimillion-dollar loan from Signet Banking Corp. may have closed the criminal investigation but it does not alleviate the long-term damage to the Richmond, Va., bank's reputation, analysts said.
Former Philip Morris Cos. employee Edward J. Reiners pleaded guilty Wednesday to money laundering and bank fraud charges related to a scheme to bilk Signet and seven other financial institutions of more than $350 million.
Mr. Reiners, 51, who entered his plea Wednesday in U.S. District Court in Richmond, faces decades of jail time and millions in potential fines when he is sentenced on Oct. 21.
"For us, the guilty plea simply means that the guy who did the crime will be doing the time, and we're happy with that," said Signet spokeswoman Teri Schrettenbrunner.
Various court filings in the case have shown that Signet relied on Mr. Reiners' own representations that he needed the loans for a top-secret project on behalf of Philip Morris, where he once had been employed.
Neither Signet, the lead bank, nor the seven other lenders ever bothered to verify whether Mr. Reiners was actually working for Philip Morris then, or whether the project itself existed.
"The smell test should have been in effect, and somebody slipped," said Natwest Securities Corp. analyst Thomas D. McCandless.
Signet has subsequently been sued by two other lenders, CoreStates Financial Corp. and Bank of Montreal, for failing to conduct proper due diligence on Mr. Reiners.
Donaldson, Lufkin & Jenrette Securities Corp. analyst Thomas K. Brown retains a "buy" recommendation on Signet due to his continuing belief in the company's long-term growth prospects. Mr. Brown added, however, that "my ability to get investors who don't know Signet to look at the company has been hit hard by the lingering problems."
Mr. McCandless, recently touring the country to promote his top stock picks to investors, said he finds "zero" institutional interest in Signet.
Mr. Brown, one of Signet's stalwart advocates on Wall Street, said he is particularly troubled by the Richmond-based bank's willingness to override its internal loan limit of $50 million to take on $81 million of exposure to Mr. Reiners.
"It calls into question the whole issue of exception-to-policy lending," Mr. Brown said.
"There's a cloud surrounding the company," Mr. McCandless agreed. But he added that Signet may be able to overcome the blow to its reputation by reporting strong growth in the next few quarters.
Mr. McCandless predicted Signet would earn 56 cents a share in the second quarter, up from 52 cents at March 31, and 50 cents in the second quarter of last year. Mr. Brown was a little more cautious, with an estimate of 54 cents.
Both analysts expect full-year earnings of $2.30 a share, compared to $1.86, on a restated basis, in 1995.