Does Signet Banking Corp. have another spinoff in its future?
Richmond-based Signet, which engineered a highly successful spinoff of its credit-card unit last year, is at the least considering creating a separate company out of its national direct-mail marketing program, according to analysts who have talked with bank executives.
"A year from now, we're going to be talking about Signet being in two parts again - one part a direct-marketing firm, and the other part the branch-based bank that could be sold to First Union Corp. or Crestar Financial Corp.," said Thomas K. Brown with Donaldson, Lufkin & Jenrette.
Mr. Brown, who is one of Signet's most enthusiastic fans on Wall Street, said company executives have told him they frequently ponderthe possibility of spinning off the direct-marketing operation, best known for its "loan-by-check" consumer installment product. The model for such a divestiture would be last year's creation of Capital One Financial Corp., formerly Signet's credit card unit.
"Anything's possible," said Signet spokeswoman Teri Schrettenbrunner. We take a look at all our independent businesses to figure out how to make them as profitable as we can, just as we looked at the credit card business.
"Within that decision-making framework," Ms. Schrettenbrunner added, "we take a look at whether it makes sense for that business to remain a portion of the company or be spun off into its own independent business.".
Signet turned its credit card operation into a national powerhouse using data-based marketing strategies and national direct-mail solicitations. Since the February 1995 spinoff of Capital One, Signet has been applying those same techniques to such traditional bank products as installment loans, mortgages, student loans, home equity lines, and leases.
Outstandings in the loan-by-check installment product, the most high- profile of these efforts, increased to $848 million in the first quarter, from $550 million at yearend, contributing the largest share of Signet's first-quarter loan growth.
Merrill H. Ross, an analyst with Wheat First Butcher Singer, said Signet's direct-mail loan programs could be funded through securitizations rather than branch deposits. Signet is already one of the nation's largest securitizers of home equity loans, contributing 3.2% of last year's total $15 billion issuance.
"It's a funding mechanism that takes out the risk," she said. "You don't handle risk on the balance sheet with a reserve; it's paid for out of the cash flows that come off the securitizations."
In the wake of its first-quarter earnings report, Signet announced plans to slow down the marketing of its loan-by-check program in order to monitor a national trend of rising consumer debt and credit problems. Neither Mr. Brown nor Ms. Ross said this slowdown is likely to deter Signet from thinking about splitting the company.
"That business will have its ebb and flow and will have to run with the economy anyway," Ms. Ross said. "The slowdown in loan-by-check may actually help them avoid booking bad assets, which would really slow down the spinoff."