Magazine article American Banker

Thrifts Become Bigger, Fewer, More Efficient

Magazine article American Banker

Thrifts Become Bigger, Fewer, More Efficient

Article excerpt

By HOCHSTEIN, MARC

Consolidation has helped thrifts become more efficient, and shaken up the top rankings in the last year.

Through its acquisition of Great Western Financial Corp., Washington Mutual Inc. zoomed up to the No. 1 spot in American Banker's annual survey. (See tables, pages 11-13.) The Seattle-based thrift's assets grew to $71 billion at June 30, from $24 billion a year earlier. Its efficiency ratio improved to 46.72%, from 49.80%.

And that does not include its acquisition of H.F. Ahmanson & Co., the holding company for Home Savings of America of Irwindale, Calif. The deal closed Oct. 1, after the survey period ended. Home Savings had been ranked second, with $53 billion of assets.

Consolidation is "the way to capture the most value from the franchises," said Jonathan E. Gray, analyst at Sanford C. Bernstein & Co. "In some instances the profits of a target company can potentially be elevated by as much as 40% to 50% if cost cuts are effected" in mergers of thrifts operating the same markets.

Acquisitions have "allowed us to quickly become a player on a national scale," said Craig S. Davis, executive vice president of lending and financial services at Washington Mutual, which now operates in 29 states from coast to coast. The Great Western deal in particular "gave us significantly more market in which to grow share on a national basis."

Growth of industry assets has been slow in recent years-only 1.57% in the last year, to $1.04 trillion-because of the difficulty of originating adjustable-rate mortgages, Mr. Gray said. "It has been very difficult for thrift executives to grow their businesses prudently without accepting undue interest rate risk."

Since the 1980s most thrifts have preferred to hold adjustable-rate mortgages in their portfolios rather than fixed-rate loans, which can subject them to interest rate risk. …

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