Signet Banking Corp. said yesterday that it would lose between $50 million and $55 million in the fourth quarter and post a loss for the year after taking an unexpected and costly step to quickly clear its books of real estate problems.
The quarterly loss -- the first for the Richmond, Va.-based company in more than four years -- is the result of the company's decision to set aside $165 million this quarter to cover the anticipated cost of selling bad real estate loans and foreclosed property, the company said.
"We believe that we are at or very near the peak in our non-performing real estate assets, and this action will enable us to move more quickly to get these problems behind us," said Robert M. Freeman, Signet's chairman and chief executive officer.
Banks typically pull money out of earnings each quarter to cover the amount lost when properties or loans are sold at a discount. The need to cover that shortfall between the loan amount and the plummeting price of real estate has been the primary cause of losses at many of the region's largest banks in recent quarters.
With the large reserve created, Signet executives said they hoped that results in 1992 would brighten sharply as the mistakes of the past were sold off quickly and quarterly earnings returned to normal.
"The drag on earnings is such that it makes you a very mediocre performer," said Kenneth H. Trout, president of Signet Bank/Maryland.
"We're just delighted to get it behind us and still have enough power to be a player, to be a survivor," he said.
Mr. Freeman, in a statement, said that the company would continue to exceed capital levels required by regulators and that earnings next year would be "significantly improved."
Signet's decision to take the large, one-time hit was reached at a board meeting yesterday, the company said. The directors also agreed at that time to keep the quarterly dividend at 20 cents a share.
Yesterday's housecleaning announcement had not been anticipated by analysts. Most of those tracking the company had expected Signet to earn between 95 cents and $1.25 a share this year. Instead, Signet said yesterday it expected to lose between $25 million to $30 million in 1991, or about 95 cents to $1.10 a share.
Signet was also one of the few major banking companies in the region to weather the current real estate crisis without suffering a loss.
Still, analysts said the announcement was not completely without precedence.
With more than 17 percent of its loans in the risky real estate construction segment, Signet was clearly hurt by the severe downturn in the real estate market. The company had nearly $350 million worth of soured loans and repossessed real estate at the end of September, while another $50 million worth of troubled assets have been sold this year, on average for 21 percent less than the original loan amount.
The company said the fourth-quarter charge would sufficiently cover the cost of disposing foreclosed real estate, which had already been reduced by 27 percent of its original value, and bad real estate loans, which were reduced by 14 percent.
L Signet has 244 offices in Virginia, Maryland and Washington.