Thriving Mich. Thrift Is Focus of Questions on Industry's Future

Article excerpt

Though he is a recognized master of the mortgage business, Thomas R. Ricketts is the first to concede that he cannot control his future. In today's environment, a one-product focus is no guarantee of independence.

As chairman and president of Standard Federal Bank, Mr. Ricketts presides over one of the nation's largest and most profitable thrifts. Based in Troy, Mich., the $10 billion-asset unit, the nation's sixth largest, delivered an eye-opening 1.21% annualized return on average asset in the second quarter.

Despite that sterling performance. Standard Federal's common stock is trading at a limp 1.35 times book value. Stated another way, it is trading at a mere 8.8 multiple over its earnings of the previous 12 months.

Prime Target

Standard Federal is clearly vulnerable to an aggressive bank acquirer.

"Whether we get bought out is an open question," said an unabashedly candid Mr. Ricketts.

Through no fault of his, Standard Federal has become a focal point in an ongoing referendum on the thrift industry. Two major questions loom for healthy thrifts that are at the peak of their profitability.

Do investors dare accord high trading multiples to even healthy thrifts, given the industry's notorious volatility?

And do regional banks dare make major thrift acquisitions, given the really and rate exposure involved in such transactions? in such transactions?

Mr. Ricketts professes not to be overly concerned about the answers to those questions. He said Standard Federal's specialty will remain in demand - no matter the ownership.

"I think there is a place for a financial institution that gathers deposits and invests in housing," he said.

From a purely personal standpoint, the 62-year-old Mr. Ricketts is sitting pretty. A 36-year veteran of Standard Federal, he commands an annual salary of $715,000 and by all accounts could finish out his career at the thrift. On March 1, he was assured a golden parachute worth $2 million if his thrift gets bought out.

Worth the Price

Make no mistake, however. Experts say this is one thrift operator who has the credentials to back his compensation.

At June 30, only 0.67% of Standard Federal's assets were nonperforming. Analysts say the savings bank's 1.39% ratio of annualized operating expenses to average assets is among the lowest in the industry.

Mr. Ricketts has a simple formula for success: Focus tightly on home loan production.

He said Standard Federal has an 18% share of the mortgage origination market in metropolitan Detroit - more than his nearest three rivals combined.

Last year, Standard Federal closed 46,600 single-family mortgages worth $3.6 billion. As of June 30 of this year, closings had reached $3.9 billion, on an annualized basis.

"We want to be the dominant single-family lender," said Mr. Ricketts.

Acquisition Strategy

A further emphasis is on acquisitions. Mr. Ricketts has completed 15 takeovers over the past two decades, and is busy working on two others. Analysts who follow the company say Mr. Ricketts knows how to make his deals work.

For example, he is paying $111 million, or a healthy 1.7 times book, for Heritage Bankcorp in Taylor, Mich. Analysts don't quibble with Mr. Ricketts' projections that the deal almost immediately will be accretive to earnings per share despite the high price. Heritage, which is expected to join Standard Federal early next year, operates 45 branches and holds $930 million of assets.

"Mr. Ricketts is making accretive acquisitions, and Standard Federal's current high earnings levels should be sustainable at least through 1994," said Thomas O'Donnell, an analyst with Prudential Securities in New York.

According to First Call, the consensus earnings forecast for Standard Federal is $3.46 a share in 1993 and $3.89 a share in 1994. …