Magazine article American Banker

Ford Motor's Embarrassing Retreat Points Up Pitfalls of Thrift Business

Magazine article American Banker

Ford Motor's Embarrassing Retreat Points Up Pitfalls of Thrift Business

Article excerpt

SAN FRANCISCO - Like the month of March, Ford Motor Co. came into the thrift industry roaring like a lion. But it may go out like a lamb.

The automotive giant bought San Francisco-based First Nationwide Financial Corp. eight years ago, vowing to turn the thrift holding company into one of the nation's largest consumer banks.

But First Nationwide turned out to be a loser, piling up $187 million in losses since 1991. Now Ford appears ready to pack it in: The company has hired J.P. Morgan Securities to help it sell the thrift, according to several people familiar with the situation.

For Ford, the thrift industry "is a business they wish they hadn't gotten involved in," said Maryann Keller, an auto analyst with Furman Selz.

Argument Loses Steam

The retreat by one of the nation's most powerful corporations is not just an embarrassment for Ford. It also weakens the argument that nonfinancial enterprises would take banking by storm if laws restricting their freedom were relaxed.

Ford was certainly the largest outsider to buy a thrift. But its disappointing experience is not unique: Retail giant Sears, Roebuck and Co. sold off most of its California thrift, and Pinnacle West's Merabank was seized by regulators several years ago.

These experiences suggest that a basic business rule also holds true in the banking and thrift industries: Companies get into trouble when they venture into businesses they don't understand.

"Over the last 30 years, I've seen lots of nonfinancial companies enter the thrift business, and not one has had much success," said Herbert M. Sandler, chairman of Oakland, Calif.-based Golden West Financial Corp., the nation's third-largest thrift company. "I never understood what the fuss about industrials coming into the banking business was all about."

Far Cry from Fenders

Anthony M. Frank, the former First Nationwide chief executive who sold the thrift to Ford, said, "owning a financial institution is a lot different than bolting on fenders."

Ford's recent decision to unload First Nationwide shows how much has changed since the heady days when the auto company brashly proclaimed its goal of catapulting to the top of the thrift industry.

After buying First Nationwide for $493 million in 1985, the Michigan company announced its aim of quadrupling the thrift's assets to $50 billion and expanding its branch network to 24 states, making it larger than any rival.

Ford's ambitions did not stop there. It bought a thrift only because federal law prohibited it from acquiring a commercial bank, officials said.

Charter Switch Planned

The company's real target was a bank charter, giving it access to broader Powers and markets than a thrift would provide. Ford planned to switch First Nationwide to commercial bank status as soon as law permitted.

Ultimately, company officials said, they wanted First Nationwide to survive the industry shakeout and emerge as one of a handful of nationwide banking players.

As recently as 1990, Kenneth Whipple, president of Ford's financial services group, called First Nationwide "the bedrock of our expansion in the consumer side of the [financial services] business."

Ford's bold agenda made some people nervous. The automaker was plainly threatening to breach the wall separating banking from commerce, enshrined in federal law since the 1930s.

Critics, including some in Congress, railed that Ford's plan placed too much economic power in the hands of a single company. And that, they warned, raised the specter of colossal industrial-financial combines gaining a stranglehold on the nation's economic life.

But, in Ford's case, that threat melted away in the face of punishing credit problems, tougher competition, and a harsher regulatory regime. First Nationwide became ensnared in a trap of bad loans and weak competitive positions in all the markets it served. …

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