Battered by rising credit costs and administrative expenses, the nation's largest thrift, H.F. Ahmanson & Co., reported earnings that were sharply below expectations.

For the fourth quarter, the Irwindale, Calif., company reported earnings of $60.7 million, or 40 cents a common share - 10 cents lower than analysts had expected. For 1995, earnings were $216.2 million, down 9% from profits in the preceding year.

"They're terrible," analyst Jonathan Gray said about the earnings. "The company's credit costs were higher than expected. General and administrative expenses "were substantially higher than expected, and neither of those are good." Mr. Gray is with Sanford C. Bernstein & Co., New York.

Analysts expect the drag on earnings to continue this year and next. Mr. Gray has cut his 1996 earnings projections from $2.55 per share to $2.10. In 1997, he now projects Ahmanson will earn $2.35, down from an earlier projection of $2.60.

The company's stock fell $2.50, to $21.875 a share, last Wednesday, after the earnings were announced. Analysts said investors are concerned about Ahmanson's expensive strategy to become a consumer bank, as well as the deterioration in credit quality.

"The market just does not tolerate experiments that don't pay off very quickly," said Charlotte A. Chamberlain, an analyst at Wedbush Morgan Securities, Los Angeles.

Ahmanson's strategy of building its consumer lending business from scratch is much more expensive than that of competitor Great Western Financial, which in 1983 purchased a consumer finance company, Aristar, for the same purpose, Ms. Chamberlain said.

High administrative costs are expected to persist at Ahmanson as the thrift tries to break into the increasingly crowded consumer business.

"You can't enter an existing market and expect anything but higher operating costs with subpar performance until you make your inroads," said Gareth Plank, an analyst at Rodman & Renshaw, San Francisco.

Taking a bearish view, investors might think that Home Savings, Ahmanson's principal thrift unit, is entering the consumer finance market too late, Mr. Plank said. Margins are narrowing and the competition, particularly for subprime credit, is intense, he said.

On the other hand, one could argue that Home Savings has a good chance of succeeding where others might fail because of strong capital and experienced managers, Mr. Plank added.

Kevin Twomey, chief financial officer at Home Savings, said management is confident it will succeed, in part because its mortgage customers and depositors have expressed a demand for consumer loans in the past. "This is natural business to us," Mr. Twomey said. "We have much of the infrastructure in place and can do it well."

Ms. Chamberlain said she was most concerned about the rise in nonperforming assets, from $843 million, or 1.57% of total assets at the end of 1994, to $949.4 million, or 1.88% of total assets, at the end of 1995.

Most California thrifts reported a decline in nonperforming assets for 1995.

Ahmanson has said that most of its nonperforming loans were made before 1992, and therefore the increase in nonperformers does not point to credit problems in more recent times.

For Ms. Chamberlain, however, that was cold comfort. Home prices have fallen since 1992, and continue to fall in many parts of California, she said. That means that other borrowers have lost equity, and nonperforming assets could continue to rise at Ahmanson, she said.

Mr. Twomey said the thrift has seen far better credit performance on more recent books of business as it has tightened its credit standards and home-price declines have slowed.

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