Great Western Cuts Threaten Up to 1,800 Jobs : Banking: A consolidation trend is behind the move, which will affect administrative workers only.
Pummeled by problem real estate loans and Southern California’s soured economy, the parent of Great Western Bank announced plans Thursday to make deep cuts in payroll and other administrative costs by the end of the year--a process that could cost up to 1,800 jobs.
Great Western Financial Corp. Chairman James Montgomery said in an interview that a final number of job reductions has not been determined. He would only say that payroll will definitely be trimmed and there will be “substantial expense reduction.”
Investors reacted unenthusiastically to the news of the cuts. Great Western’s shares closed unchanged at $17 in moderate trading on the New York Stock Exchange.
Montgomery Securities analyst Joseph A. Jolson said Great Western’s action amounts to a clear recognition that its costs are out of line. “If they don’t make themselves efficient, someone else will,” he said.
“With consolidation occurring at a brisk pace, if you can’t cut costs and get profits up, someone else will do it for you by buying you,” Jolson said.
Great Western said it has hired McKinsey & Co., a well-known consulting firm, to study all of its business activities. The company indicated it may try to reduce payroll by up to 40%.
The only employees subject to layoffs will be the thrift’s 4,500 administrative workers, nearly 3,300 of whom work at the S&L;’s headquarters complex in Chatsworth. Employees at Great Western’s 388 branches in California and Florida--who make up most of the 16,200-worker payroll--will not be affected by the cutback, the company said.
With $38 billion in assets, Great Western is the nation’s second-largest savings and loan and until recently was considered one of the strongest.
The downward spiral of Southern California real estate values and a sluggish regional economy forced Great Western and other major California thrifts to report huge loan losses in the second quarter ended June 30.
Although Great Western reported a quarterly profit of $52.6 million after writing down loans and foreclosed real estate by $86 million, the S&L; remains burdened with problem loans--more than 5% of assets--and above-average costs.
“We are being adversely affected by the Southern California real estate market and a high level of non-performer loans,” Montgomery said. “We want to do everything we can to improve the bottom line. Every corporation in the nation is looking at costs.
“There is no predetermined goal for cost cuts,” Montgomery said. “We just want to make sure we are operating as efficiently as we can, to make sure the money we are spending is being spent wisely.”
Although the McKinsey study will be completed by year-end, Montgomery declined to say when or if the financial institution will take a restructuring charge.
Great Western spokesman Steve Hawkins said each of the thrift’s administrative employees will be asked to define what they do and then come up with ways to make budget cuts of up to 40%.
“That’s what we’re offering up for examination,” he said. “It doesn’t mean that there will be that many jobs cut. It’s quite likely that there will not be. The process is not to cut across the board but to develop a consensus on what we can eliminate and what we can keep.”
