Ahmanson Taking a Different Road under New CEO, and It's Bumpy

By Crockett, Barton | American Banker, May 15, 1996 | Go to article overview

Ahmanson Taking a Different Road under New CEO, and It's Bumpy


Crockett, Barton, American Banker


When Richard Diehl's hand-picked successor took the helm of H.F. Ahmanson & Co. last year, few could have predicted the massive changes in store at the country's largest thrift.

During the 26 years Mr. Diehl ran Ahmanson, the company's Home Savings of America thrift subsidiary had grown from a $2.6 billion-asset southern California lender into a $50 billion-asset national powerhouse through single-minded pursuit of plain-vanilla mortgage lending.

Yet no sooner had Mr. Diehl walked out the door, than the new chief executive, Charles Rinehart, threw that strategy out the window. Home Savings, Mr. Rinehart declared, would follow the latest fad in the thrift business and become more like a retail commercial bank.

Though Mr. Rinehart insisted in a recent interview that changing times require a new approach - "We're not dealing in the same market that (Mr. Diehl) dealt with," - the thrift's new strategy is drawing criticism from former top-level employees and analysts.

"I think diversification is a good idea, but a complete change of infrastructure by a major corporation is risky," warned one former executive, on the condition that he not be named.

Indeed, this kind of debate is being heard in corporate boardrooms throughout the thrift industry as many institutions are questioning their traditional allegiance to the highly-competitive home mortgage business.

It is surprising to many that Mr. Rinehart, a 49-year-old former actuary who left a top job at a midsize consumer finance company to become Mr. Diehl's protege, would stray from his mentor's approach.

But Mr. Rinehart argued that most of the mortgage loans Home Savings makes are only marginally profitable - the result of tougher competition on both the deposit and asset side of the business, as well as increased capital requirements.

The solution, he said, is to fundamentally reshape the business. Irwindale, Calif.-based Home Savings must get more high-yielding assets on its books, especially small-business loans and nonmortgage consumer loans.

It must also cut funding costs by selling more checking accounts, and ridding its portfolio of mortgages that don't earn at least a 15% return on equity but can be sold into the secondary market at a profit. This means letting the portfolio shrink, if need be.

In an extreme case, Mr. Rinehart said, the portfolio reduction could be as much as 40%, although the most likely scenario is shrinkage of a few billion dollars by the year 2000. This assumes that Ahmanson is successful in growing a new consumer finance division into a $5 billion-asset operation, and also adding another $2 billion to $4 billion from a new drive into small-business lending.

Mr. Rinehart said this strategy was never discussed with Mr. Diehl. Letting the mortgage portfolio shrink would have been anathema to Mr. Diehl's whole approach to the business, Mr. Rinehart said.

But the topic has come up between the two since Mr. Diehl's retirement, at informal lunches at such venues as a pier-side restaurant in San Clemente. Mr. Rinehart insisted that Mr. Diehl is a supporter of the changes - albeit a reluctant one. "Intellectually he agrees. Emotionally, sometimes he has a hard time with it," Mr. Rinehart said.

But getting employees on board has been tough. Mr. Rinehart has felt compelled to replace most of Mr. Diehl's senior executives with his own hires. The implementation of a mandatory retirement age last year is letting Mr. Rinehart replace much of the board of directors.

Los Angeles-based executive recruiter Robert Rollo, who introduced Mr. Rinehart to Ahmanson, and also placed many of the company's other top executives, insisted that the latest executive changes have brought in higher caliber executives better suited to a more sophisticated business. "From a senior management standpoint, it's just much more of a crisp, and broader- based group," he said.

But some of the executives who have left said they fear Mr. …

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