Magazine article American Banker

Ahmanson's Earnings Fall Short; Credit Costs and Expenses Cited

Magazine article American Banker

Ahmanson's Earnings Fall Short; Credit Costs and Expenses Cited

Article excerpt

Battered by rising credit costs and administrative expenses, the nation's largest thrift, H.F. Ahmanson & Co., reported earnings that were sharply below expectations.

For the fourth quarter, the Irwindale, Calif., company reported earnings of $60.7 million, or 40 cents a common share - 10 cents lower than analysts had expected. For 1995, earnings were $216.2 million, down 9% from profits in the preceding year.

"They're terrible," analyst Jonathan Gray said about the earnings. "The company's credit costs were higher than expected. General and administrative expenses "were substantially higher than expected, and neither of those are good." Mr. Gray is with Sanford C. Bernstein & Co., New York.

Analysts expect the drag on earnings to continue this year and next. Mr. Gray has cut his 1996 earnings projections from $2.55 per share to $2.10. In 1997, he now projects Ahmanson will earn $2.35, down from an earlier projection of $2.60.

The company's stock fell $2.50, to $21.875 a share, last Wednesday, after the earnings were announced. Analysts said investors are concerned about Ahmanson's expensive strategy to become a consumer bank, as well as the deterioration in credit quality.

"The market just does not tolerate experiments that don't pay off very quickly," said Charlotte A. Chamberlain, an analyst at Wedbush Morgan Securities, Los Angeles.

Ahmanson's strategy of building its consumer lending business from scratch is much more expensive than that of competitor Great Western Financial, which in 1983 purchased a consumer finance company, Aristar, for the same purpose, Ms. Chamberlain said.

High administrative costs are expected to persist at Ahmanson as the thrift tries to break into the increasingly crowded consumer business.

"You can't enter an existing market and expect anything but higher operating costs with subpar performance until you make your inroads," said Gareth Plank, an analyst at Rodman & Renshaw, San Francisco. …

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