In weighing a bid for Great Western Financial Corp., Washington Mutual Inc. is likely looking at whether it can squeeze out costs by shifting Great Western's assets and liabilities and raise revenues by aggressive marketing, market sources say.
The Seattle thrift's counteroffer to H.F. Ahmanson's hostile bid for Great Western may come this week, sources say.
Lacking the strategic advantage of overlapping branches that underlies Ahmanson's rich bid, Washington Mutual would likely focus on changes to Great Western's balance sheet and tax structure, according to analyst R. Jay Tejera of Dain Bosworth, Minneapolis.
Such changes were important in Washington Mutual's deal last year with American Savings Bank, Mr. Tejera said. Washington Mutual retired some of American's expensive debt with lower-cost deposits.
The Seattle thrift also has replaced its low-yielding mortgage-backed securities with American's more profitable adjustable rate mortgages. Before its sale, American's production outpaced its capital.
Also, Washington Mutual has taken advantage of lower corporate tax rates in its home state to recognize some income from American's loan sales in Washington, rather than California.
Washington Mutual could cut costs by replacing Great Western's expensive advances from the Federal Home Loan Bank of San Francisco with deposits Washington Mutual now invests in low-yielding mortgage-backed securities, for example, one market source suggested. At yearend 1996, Great Western had $2 billion in such advances at an average interest rate of 6.63%.
Just as important to the economics of a Washington Mutual-Great Western deal would be the revenue growth of the merged institution, Mr. Tejera said.
With Great Western's 296 California branches, Washington Mutual would gain the geographic reach and concentration to advertise cost-effectively in the state.
At a stock price of $54 a share, Washington Mutual could afford to offer $43 or $44 a share for Great Western without diluting its own shareholders, Mr. Tejera has calculated. Washington Mutual was trading at $53.50 late Wednesday.
But, he and others emphasize that Washington Mutual does not necessarily have to outbid Ahmanson. It could be in the running even if it presents a lower bid, as board members weigh the impact of the two deals on employees and the community, as well as the long-term prospects of the two stocks.
