Can A Superthrift Survive On Safety?Amy Barrett
Just driving out to H.F. Ahmanson & Co.'s Southern California headquarters speaks volumes about the savings and loan. The nation's largest thrift is located not in the glitz and glamour of Beverly Hills, but in Irwindale, one freeway exit away from gravel pits and a Miller brewery. That suits Richard H. Deihl, 64, Ahmanson's chairman and chief executive, just fine. "You can be a pure-vanilla savings and loan as long as you do it efficiently," he says.
After some costly 1980s misadventures, Deihl, who retires at the end of the year, is returning the 104-year-old company to its roots as a home lender. It's a powerful recipe these days, as many thrifts go back to basics and post robust profits. "There has been a real turnaround in the industry," says Jonathan L. Fiechter, acting director of the Office of Thrift Supervision.
That strategy may not work forever: Possible higher short-term interest rates plus more competition from mortgage bankers and perhaps superregional or money-center banks could spoil the game. While other thrifts gear up, Ahmanson is sticking with its old formula.
SMALL POTATOES. Ahmanson strayed from plain vanilla when it joined other thrifts during the past decade to dabble in commercial real estate. Ahmanson wasn't badly burned: It lost $161 million in the development business over three years and wrote off that much again in commercial real estate loans--small potatoes compared with many other thrifts--but Deihl still vowed to return to home lending.
For now, it's working. Ahmanson's residential-lending profits and enviable capital levels, $2.7 billion last year, were strong enough to allow it to take an estimated 30% haircut on $1.2 billion worth of soured California home loans, which it sold to Bear, Stearns & Co. And Wall Street is clearly happy with Ahmanson: On July 30, the $49 billion company raised $287 million in new capital by selling convertible preferred stock. Investors were clamoring for more.
Still, there are long-term risks in Ahmanson's approach. It has been enjoying fat net-interest margins, as its borrowing rates have fallen faster than the adjustable rates on its mortgages. But profit margins could erode if short-term rates rise and its borrowing rates tick up faster than its mortgages. Ahmanson's margin will shrink to 2.90% by the end of 1994, down from the current 3.13%, predicts analyst Thomas O'Donnell of Prudential Securities Inc.
Ahmanson is also vulnerable to competitors. Superregional and money-center banks could invade the Golden State if Congress allows interstate banking. And brawny mortgage bankers such as Countrywide Credit Industries Inc. have already cornered half the market for mortgage originations. What's more, since the mortgage bankers don't have big branch systems and don't pay deposit insurance, they can often offer origination packages at lower rates than thrifts such as Ahmanson. And they stand to make big inroads in adjustable-rate mortgages, if they should become popular again when interest rates rise.
Deihl is aware of the competitive pressures. He's shopping for acquisitions in California, Florida, and New York, hoping to expand his base of loans to boost operating efficiency. News reports had Ahmanson holding preliminary discussions with troubled $16 billion CalFed Inc. last May. A spokesman for CalFed declined to comment. Smaller California thrifts such as Fidelity Federal Bank are also on the market.
But while Ahmanson concentrates on old-fashioned home lending, other thrifts are branching out. Up north, Washington Mutual Savings Bank is planning to offer customers everything from mutual funds to boat loans. And closer to home, CEO Stephen J. Trafton of Glenfed Inc. says thrifts must get into businesses such as tax preparation and planning to avoid being hurt by shrinking lending spreads.
Thrifts have stumbled getting into new businesses in the past. But some prudent diversification may be mandatory to allow thrifts to keep up with changing consumer preferences. Deihl and Ahmanson may find they have to change to avoid getting left behind in the gravel pits.