GreenPoint Financial Corp.'s recent purchase of 60 Home Savings branches and $8.3 billion in deposits from H.F. Ahmanson Inc. gives the Flushing, NY, company the largest deposit market share of any thrift in metropolitan New York. But the deal raises some questions for the longer term.

[Expanded Picture]GreenPoint chairman Thomas Johnson must execute the strategy he's laid out for the thrift - that of being the industry's biggest low-documentation specialty mortgage lender. It won't be easy.

[Expanded Picture]That the deal vaults GreenPoint ahead of its rival New York thrifts must be satisfying to Johnson. Running even a greatly expanded GreenPoint may not compare to being the heir apparent at Chemical Banking Corp., which Johnson was five years ago, or at Manufacturers Hanover Corp., where he also spent a year as a likely successor to then-CEO John McGillicuddy, but it sure beats running just another second-tier player in an over-banked market.

The deal cost GreenPoint $660 million and helped shed some excess capital - which, ironically, was a problem. But now Johnson must figure out how to put those new liabilities to work.

The deposits fetched an 8% premium, which led some people to grumble that GreenPoint paid too much. Johnson downplayed that concern at a news conference with Ahmanson CEO Charles Rinehart. "The acquisition should be accretive to our earnings, and it will make us a much more efficient bank," Johnson said. But Wall Street's reaction was lukewarm at best. GreenPoint's share price fell $1.50 from $24 the day before the announcement to $22 two days after.

GreenPoint will need some time before its new deposits begin earning the returns that Johnson thinks they can. "We're going to expand in a reasonably aggressive fashion, but we're going to be careful," said spokesman Richard Humphrey.

"Clearly, the internal growth is not going to utilize those deposits for years to come," said analyst Thomas Theurkauf of Keefe, Bruyette & Woods Inc. The problem is not insurmountable, but GreenPoint will have to park most of those deposits in intermediate Treasury and agency bills until enough borrowers appear.

Part of the answer will be found in a mortgage origination business GreenPoint bought from Barclays Bank plc in April. Humphrey described the unit as a platform for a greatly expanded low-doc business, which GreenPoint intends to do nationwide.

[Expanded Picture]GreenPoint is venturing into uncharted territory by pursuing this business on a grand scale. No other home lender in recent memory has relied so heavily on the low-doc strategy. Citicorp tried in the late 1980s, but it was badly burned.

But Thomas O'Donnell, an analyst with Smith Barney in New York, thinks the low-doc strategy is less risky than it seems. GreenPoint "pretty much dominates the market, with a 70% market share in New York, and they're very good at it," he says.

Moreover, although GreenPoint is currently carrying nearly $400 million in non-performing loans, O'Donnell sees no problem there either, because the thrift is "very strict" with its borrowers. Few non-performers deteriorate into charge-offs.

That strictness could cause trouble as GreenPoint waits for regulatory approval on the Ahmanson deal. By demanding such high down payments for its low-doc mortgages, GreenPoint discriminates against lower-income and minority borrowers, charges Bertha Lewis, an organizer for the Brooklyn, NY, chapter of the Association of Community Organizations for Reform Now, or ACORN. Her group may challenge the acquisition under the Community Reinvestment Act.

Lewis alleges that these high down payments leave borrowers overextended and more likely to default. GreenPoint is less flexible in its dealings with these people than other mortgage lenders are with upper-income borrowers.

Humphrey counters that high down payments are not at all unusual in the low-doc business.

As for Ahmanson, the country's largest thrift is not quite abandoning New York. It will still originate mortgages there, although it intends to open 25 to 30 new satellite branches in California to compensate for the lost deposits.

The sale amounted to a decision as to how Ahmanson's management could best spend its time, said CEO Rinehart. Ahmanson intended to concentrate on California and Texas, and keep New York as its third market. Ahmanson wanted to sell its Florida branches, but no buyers would take them. When GreenPoint's offer came along, Ahmanson decided to keep Florida as its third market.

TRIMMER AND TRIMMER

The re-engineering craze in corporate America is nowhere busier than it i in banking. "Where perhaps as recently as three or four years ago, banks were a bit behind in embracing the tools and techniques of reengineering now they're more than holding their own," says John Karr, a partner at Emst & Young's financial services practice in charge of performance improvement.

"Re-engineering is not something that is just done, and you say, `Let's move on to the next thing.' The business climate is changing so rapidly, (banks) must continue to improve," he says. Pushing much of the re-engineering is the goal of growing revenues. "One of other things that is happening is they are gaining a better understanding of the levers they can push or pull to create value. In customer sales and service, for instance, they are differentiating segments based on behavior."

Karr concedes that in general, re-engineering will be most fruitfull at big banks. "In a small-bank environment, these techniques don't bring as much value to the table. Many community banks are already running lean and mean, and it would be hard, from a productivity standpoint, to see where they could improve."

Karr also thinks over-reliance on bank efficiency ratios is misleading, saying that changes in those ratios don't predict share price movements. Such ratios are useful, he says, but "you cannot worship at that altar."

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