ARMs Helped Top 300 U.S. Thrifts Stay Afloat as Industry Floundered

last year, buoyed by continuing strong demand for adjustable-rate mortgages. The group saw its assets swell to almost $765 billion as of yearend 1994, according to American Banker survey. (Complete tables begin on page 12.) Despite the growth of the leaders, the industry as a whole lost 1.2% of its assets, shrinking to $1.01 trillion by year end, the survey found. "The strong continue to get stronger," said analyst Thomas O'Donnell of Smith Barney Inc. He and other analysts added that they expect the trend to continue as the industry consolidates. Mr. O'Donnell said that the growth of the secondary-market agencies, Fannie Mae and Freddie Mac, has cut profit margins for thrifts. Midsize thrifts are the hardest hit and find it difficult to turn a profit - thus fueling the consolidation trend, he said. Meanwhile, loan growth at the big California thrifts far exceeded growth for the 300 top thrifts nationwide. At the nation's largest thrift, H.F. Ahmanson & Co.'s Home Savings of America, Irwindale, Calif., assets grew by 6% to $53.4 billion. At second-ranked Great Western Bank, Chatsworth, Calif., assets grew by almost 11% to $39.7 billion. And at the No. 3 thrift, Golden West Financial Corp.'s World Savings in Oakland, Calif., assets grew by 10% to $31 billion. Some of the top thrifts have vowed to stay highly active in the mortgage markets, originating both fixed-rate loans and ARMs, and selling the fixed models in the secondary market when necessary. Despite the asset growth, total employment at the top 300 thrifts fell by 11% last year to about 183,000. The fall mirrored a similar drop in employment in the thrift industry as a whole. Analyst Jonathan Gray of Sanford Bernstein & Co. said the large California thrifts had cut staff in an attempt to realize shareholder value at a time when California's depressed real estate market and margin compression have eaten into profits. Mr. O'Donnell said staff reductions at thrifts showed that they did not escape the downsizing that hit mortgage bankers last year as the total market shrank more than 20%, to $773 billion. On the deposit side, thrifts lost ground. The 300 largest thrifts had a 3.5% drop in their deposits, ending 1994 with $538 billion in deposits. Total deposits in the industry fell by almost twice as much to reach $738 billion. Several reasons were offered for the drop. Mr. O'Donnell attributed the decline to a general move by consumers away from savings and checking accounts to investment vehicles, such as mutual funds. He predicted that as thrifts find it harder to collect deposits, more deals such as the sale - announced this week - of Home Savings' New York branches to GreenPoint Financial Corp. will occur.