Signet Banking Corp., in an effort to increase the company's value to shareholders, announced yesterday that it plans to spin off its credit card division as a separate publicly traded company.
The Richmond, Va.-based company also said it plans to embark on a major restructuring to jump-start the performance of its core bank.
The severance costs from planned layoffs and early retirements, and other expenses related to the credit card spinoff, will lead to a charge against earnings of $60 million to $70 million in the third quarter, the company said. The company declined to estimate how many jobs would be affected.
Signet is the parent of Signet Bank subsidiaries in Maryland, Virginia and Washington, D.C. About 1,700 of its 8,000 employees work in Maryland.
"In 1988 we began investing in technology that would enable us to become a state-of-the-art, unique provider of financial products and services," said Robert M. Freeman, Signet's chairman and chief executive officer.
"We successfully achieved this objective in our credit card division, and with the spinoff, we will be able to concentrate fully on improving the business strategies of our core bank," Mr. Freeman said.
The spinoff plan calls for an initial public offering this fall of 19.9 percent of the new credit card company, which will be renamed OakStone Financial Corp. and have its headquarters in Northern Virginia. To make it a tax-free transaction, at least 80 percent of the company must remain in the hands of the parent, so Signet's shareholders will receive the rest of the stock of OakStone.
The company has not settled on a price for the new shares or a formula for distributing them to shareholders. Those will be determined with the help of the managing underwriters of the public offering, J. P. Morgan Securities Inc., Goldman Sachs & Co. and Smith Barney Inc.
In recent years the credit card operation's growth has far outpaced that of the bank. With about 4 million customers and $6.6 billion in credit card loans, Signet is the 10th largest bank credit card issuer in the nation and the 15th largest overall. More than 2,200 of Signet's employees work for the credit card operation, and more will be transferred as part of the spinoff.
The credit card division generates almost two-thirds of Signet's earnings, according to a registration statement the company filed with the Securities and Exchange Commission yesterday.
The spinoff, widely anticipated in the investment community, also should increase the overall value given to the combined company by the stock market. An Alex. Brown analyst estimated in May that a fully valued credit card operation and a better performing commercial bank could command a combined price of $53 a share.
In fact, despite the announced third-quarter charge and a dismal day on the stock market, Signet's shares climbed as much as $3.125 a share yesterday before settling back to $39.375, up $1.875 from Tuesday.
Signet hopes its restructuring campaign, aimed at both expense reduction and higher revenues from new products, will raise the bank's earnings to industry standards.