Ahmanson's Deihl Is Back On the Acquisition Trail

LOS ANGELES - When Richard H. Deihl was a fighter pilot in the Korean War, his survival depended on his ability to take aim and hit his targets.

His success as chief executive of H.F. Ahmanson & Co., parent of the nation's biggest thrift, has been marked with the same skill and precision.

Ten years ago, Mr. Deihl had the foresight to begin acquiring distressed thrifts, allowing Ahmanson to stitch together a network of 388 branches in nine states.

That strategy, coupled with conservative lending, has enabled Ahmanson to emerge as one of the strongest giant thrifts. Indeed, its rapid growth has propelled it among the nation's 15 largest financial institutions. With $48 billion in assets, it outstrips such heavyweights as Fleet/Norstar Financial Group and Bank of New York Co.

Mr. Deihl is ready to strike again. The 63-year-old executive says he is on the prowl for acquisitions and plans to enlarge his already expansive franchise.

"We are looking at some 30 thrifts [to acquire] at any one time," he says.

Mr. Deihl will not disclose details, but he says that in five years Ahmanson will be "far stronger" in Florida, Illinois, and Texas. He also expects to make acquisitions in California, Washington State, and New York, where Ahmanson owns the Bowery Savings Bank.

Fan of Adjustable-Rate Loans

Los Angeles-based Ahmanson would also consider acquiring one of the large, struggling California thrifts, but not without government protection against problem loans.

"You cannot subject your stockholders to that kind of risk," Mr. Deihl says.

Unlike many other thrifts that stuffed portfolios with junk bonds and commercial real estate during the roaring '80s. Ahmanson has remained judiciously committed to making adjustable-rate mortgages. About 80% of its assets are adjustable-rate home loans, compared with the thrift industry average of 33%.

"This is an attractive, well-run, focused company," said Lawrence Vitale, an analyst with Kemper Securities Group, Chicago.

Wary of Rate Risk

Mr. Deihl's single-mindedness and devotion to the adjustable-rate mortgage is being tested by sluggish mortgage demand and increased consumer preference for fixed-rate loans. But he plans to keep emphasizing adjustable mortgages.

"We will not lose sight of the fact that interest rate risk is the biggest problem a portfolio lender faces," Mr. Deihl vows.

He likens Ahmanson's business to accordion music. The sound is just as sweet in a rising or falling rate environment. He acknowledges that when rates are falling, volume shrinks because people prefer fixed-rate loans. There is also an increase in delinquencies because falling rates usually indicate a sluggish economy.

Spreads Increase

However, falling interest rates also result in wider margins. That's because the company's cost of funds falls faster than its loans are repriced. Indeed, Ahmanson's spread was 3.08% at Sept. 30, up dramatically from 2.56% a year earlier.

Mr. Deihl also notes that Ahmanson's earnings "do not depend on large volume." He expects Ahmanson to write about $8 billion to $9 billion in mortgages this year, down from $13 billion in 1990.

Home Savings of America, Ahmanson's California thrift, is writing some fixed-rate loans, but sells them all in the secondary market. In October, 31% of the loans Ahmanson made were fixed rate.

The slowdown in adjustablerate loans has prompted some analysts to cool on the stocks of Ahmanson and rival Great Western Financial Corp., Beverly Hills, another big adjustablerate lender. In mid-October, Peter Treadway of Smith Barney, Harris Upham & Co. changed his recommendation on the stocks from buy to hold, citing sluggish volume and a negative outlook for California's economy.

By Nov. 20, Ahmanson's stock was trading at $14.375 a share, up about 6.5% since the beginning of the year. That compares with a 19% jump in the prices of the nine big West Coast thrifts tracked by Montgomery Securities, San Francisco. Since then, Ahmanson's stock has slipped to about $14 a share.

Projected Earnings

Analysts are expecting Ahmanson to earn $230 million to $245 million, or $2 to $2.10 a share this year, and edge ahead to $250 million to $275 million, or $2.15 to $2.35 a share, in 1992. The company earned $212.4 million, or $1.64 a share, in 1990.

In the first nine months of this year, Ahmanson earned $181.7 million, or $1.55 a share, down 5% from $190.5 million, or $1.64 a share, a year earlier. The earnings were off primarily because of huge provisions against future losses in its real estate development company.

This year's earnings produced a 0.4% return on assets and a 10.05% return on equity.

One advantage of Ahmanson's vast branch network is that the company enjoys a low cost of funds relative to other large thrifts. From 1985 to 1990, Ahmanson averaged a 7.52% cost of funds, compared with 7.98% for thrifts with more than $10 billion in assets, according to Montgomery Securities.

Executives said Ahmanson doesn't have to pay so much for deposits because the branches seem solid and safe and the staff is knowledgeable.

"People are willing to give up $4 or $5 a quarter [in interest payments] if they feel they are dealing with capable people," said Mr. Deihl.

In California, Home Savings' branches are free-standing marble and granite structures decorated with sculptures and mosaic murals. They epitomize safety and soundness.

Ahmanson is looking for ways to cut costs at the branch level by pushing authority down the line, according to Charles R. Rinehart, president and chief operating officer. "If an experienced teller knows that it is indeed Mrs. Jones who is trying to cash a check and that Mrs. Jones has several accounts, why take the time and expense of having that check approved?" he says.

Despite spending on branches and training, Mr. Deihl does not waste money, according to former executives and analysts. He'll even admit to hitching a ride on the corporate jets of competitors like Great Western and Security Pacific Corp.

Keeping an eye on Ahmanson's bottom line is just one of the disciplines he has retained from his fighter pilot days.

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