Bumpy Trail : Major Great Western Acquisition Comes Amid Trying Times

James F. Montgomery, longtime boss of Great Western Financial Corp., has a flair for keeping his company in the limelight. He hired John Wayne and later Dennis Weaver to be Great Western’s advertising spokesmen while pulling off a deal to have the Los Angeles Lakers’ home floor renamed the Great Western Forum.

But the question now is whether Montgomery, a tall, imposing figure who once played volleyball for UCLA, will be able to turn his marketing flair into real financial success as Great Western prepares to embark on one of its most aggressive moves in recent years: the acquisition of the Southern California branch system of San Diego-based Homefed Bank.

Great Western’s move, expected to be announced Friday, calls for the purchase of 119 branches and more than $4 billion in deposits of failed Homefed for about $155 million. The deal is expected to give Great Western Bank, the main subsidiary, more deposits in California--about $24 billion--than any other savings and loan.

The acquisition signals that Great Western is starting to expand aggressively again after several years of merely trying to stay afloat in Southern California’s weak economy. Ironically, Great Western itself may someday be an acquisition target, a possibility Montgomery does not dismiss.

Yet the expected expansion comes at a time of continued pain for Great Western. While assets have grown in the past decade, profit has been highly unpredictable and problem loans have plagued its operations.

Great Western is currently in the middle of a cost-cutting campaign that could eliminate 1,000 jobs, or 22% of the administrative staff at its headquarters in Chatsworth, by the end of the year. The layoffs will almost certainly lead to a fourth-quarter loss for Great Western--on top of its $17.5-million deficit in the third quarter.

In a recent interview, Montgomery justified the job cuts by noting that “our expenses are rising, but the assets aren’t growing.”

The price Great Western has agreed to pay for Homefed’s branches is a high one that will make sense only if Great Western can quickly lure back depositors who have left troubled Homefed in recent years, analysts say.

Of Homefed’s 2,300 employees, those whose jobs are most in jeopardy are the approximately 600 who work in San Diego in support functions--such as data processing, accounting and marketing.

“It’s safe to say there will be branch closings and consolidation of any ‘back office’ operations, the kinds of things that will be assimilated into the grand Great Western collective in Chatsworth,” said Campbell Chaney, a thrift analyst with San Francisco-based Dakin Securities.

Despite the turmoil, most investors believe that Great Western is muddling through California’s real estate collapse and economic recession reasonably well. Its stock closed Wednesday at $17.625 in New York Stock Exchange trading, down $.125 cents for the day and off its 52-week high of $20.875.

Analysts praise Great Western’s move into consumer lending, checking and mutual funds as competition has toughened in mortgage lending, a thrift’s traditional bread and butter.

“We want to be a consumer bank,” Montgomery said. “That’s the right thing to be in the 1990s.”

Jonathan Gray, a financial thrift analyst with Sanford Bernstein & Co., said Great Western’s stock is a good “recovery play” if the state’s economy does pick up.

But not even Montgomery goes so far as to predict when the California economy will recover. In a recent interview, he said only that he does not sense that a recovery has begun. And a recovery is important for Montgomery and all other real estate lenders because it directly affects the quality of their real estate loans.

“I’ve been in this business 30 years and I have never seen such a prolonged downturn in housing prices,” Montgomery said. “In a situation like this, we’re always looking for a sign that things are improving significantly. But it doesn’t feel to me like we’re out of the woods yet in Southern California.”

No matter how close to the bone Great Western cuts costs, it and other thrifts are being held hostage to the poor economy and rising unemployment.

After Great Western Bank’s delinquent loans and foreclosures grew to record levels last year, Montgomery was stung by published criticism that he was not paying enough attention to the business. The company heatedly disputed the report, saying Montgomery was spending less time on daily operations, having turned over much of those duties to Chief Operating Officer John F. Maher.

Montgomery now spends most of his time on legislative and Wall Street matters, a spokesman said.

In any case, the Homefed acquisition will help Great Western resume the growth it has had to defer since the late 1980s.

Fresh off a record profit in 1986, Montgomery told shareholders of his ambitious plans for Great Western for the years ahead: to grow in size and profit by 10% to 15% annually, to expand aggressively outside its California and Florida bases and to continue diversification.

But as the years passed, Great Western became more concerned with coping with adversity than with making bold new forays.

Montgomery has been criticized for the thrift’s above-average costs and has had a difficult time persuading outsiders that the expenses are necessary to produce the above-average profit from its bank-like activities, such as consumer lending, mutual funds and checking.

But Montgomery has slowly been making his points on Wall Street. Analyst Gareth Plank of Mabon Securities in San Francisco said the Homefed acquisition will help Montgomery address the cost issue because the increase in deposit accounts will enable the thrift to spread costs over a broader customer base.

Branch Offices

The state’s largest financial institutions, in branch office totals:

* Bank of America: 1,179

* Wells Fargo: 673

* Great Western Bank: *358

* First Interstate Bank: 341

* Union Bank: 228

* Home Savings of America: 193

* American Savings: 166

* Homefed Bank: 136

* Glendale Federal Bank: 132

* California Federal Bank: 116

* Citibank: 114

* World Savings: 112

* Sanwa Bank: 108

* Coast Federal Bank: 88

* Downey Savings: 52

* Household Bank: 52

* San Diego Trust & Savings: **52

* Includes 119 Homefed branches

** Agreed to be acquired by First Interstate Bank

Source: PC Infobank, California Bankers Assn.

Great Western at a Glance

As Great Western’s assets have climbed nearly 60% in the past decade, its profits have been up and down. After peaking at nearly $300 million in 1991, earnings fell to $85 million last year.

Profits in milllions:

1992: $85.0 million Assets in billions 1992: 38.4

Source: Company reports