SAN FRANCISCO - Like the month of March, Ford Motor Co. came into the thrift industry roaring like a lion. But it may go out like a lamb.

The automotive giant bought San Francisco-based First Nationwide Financial Corp. eight years ago, vowing to turn the thrift holding company into one of the nation's largest consumer banks.

But First Nationwide turned out to be a loser, piling up $187 million in losses since 1991. Now Ford appears ready to pack it in: The company has hired J.P. Morgan Securities to help it sell the thrift, according to several people familiar with the situation.

For Ford, the thrift industry "is a business they wish they hadn't gotten involved in," said Maryann Keller, an auto analyst with Furman Selz.

Argument Loses Steam

The retreat by one of the nation's most powerful corporations is not just an embarrassment for Ford. It also weakens the argument that nonfinancial enterprises would take banking by storm if laws restricting their freedom were relaxed.

Ford was certainly the largest outsider to buy a thrift. But its disappointing experience is not unique: Retail giant Sears, Roebuck and Co. sold off most of its California thrift, and Pinnacle West's Merabank was seized by regulators several years ago.

These experiences suggest that a basic business rule also holds true in the banking and thrift industries: Companies get into trouble when they venture into businesses they don't understand.

"Over the last 30 years, I've seen lots of nonfinancial companies enter the thrift business, and not one has had much success," said Herbert M. Sandler, chairman of Oakland, Calif.-based Golden West Financial Corp., the nation's third-largest thrift company. "I never understood what the fuss about industrials coming into the banking business was all about."

Far Cry from Fenders

Anthony M. Frank, the former First Nationwide chief executive who sold the thrift to Ford, said, "owning a financial institution is a lot different than bolting on fenders."

Ford's recent decision to unload First Nationwide shows how much has changed since the heady days when the auto company brashly proclaimed its goal of catapulting to the top of the thrift industry.

After buying First Nationwide for $493 million in 1985, the Michigan company announced its aim of quadrupling the thrift's assets to $50 billion and expanding its branch network to 24 states, making it larger than any rival.

Ford's ambitions did not stop there. It bought a thrift only because federal law prohibited it from acquiring a commercial bank, officials said.

Charter Switch Planned

The company's real target was a bank charter, giving it access to broader Powers and markets than a thrift would provide. Ford planned to switch First Nationwide to commercial bank status as soon as law permitted.

Ultimately, company officials said, they wanted First Nationwide to survive the industry shakeout and emerge as one of a handful of nationwide banking players.

As recently as 1990, Kenneth Whipple, president of Ford's financial services group, called First Nationwide "the bedrock of our expansion in the consumer side of the [financial services] business."

Ford's bold agenda made some people nervous. The automaker was plainly threatening to breach the wall separating banking from commerce, enshrined in federal law since the 1930s.

Critics, including some in Congress, railed that Ford's plan placed too much economic power in the hands of a single company. And that, they warned, raised the specter of colossal industrial-financial combines gaining a stranglehold on the nation's economic life.

But, in Ford's case, that threat melted away in the face of punishing credit problems, tougher competition, and a harsher regulatory regime. First Nationwide became ensnared in a trap of bad loans and weak competitive positions in all the markets it served.

Since 1985, the automaker has invested more than $700 million over what it paid for First Nationwide and recruited a bevy of bright managers to get the thrift on track.

Fundamental Weaknesses

But money and brains were not enough. While First Nationwide may return to modest profitability, analysts say its fundamental weaknesses can't be overcome.

Its essential problem is a farflung branch network with no significant market share in any location. First Nationwide's 182 branches and 31 mortgage offices are scattered throughout nine states.

"The geographical locations don't make sense," said Jonathan Gray, analyst with Sanford C. Bernstein & Co.

Ford officials declined to comment on their decision to sell First Nationwide and refused to be interviewed for this article. However, a Ford spokesman noted that the company's other financial services units, including leasing, consumer finance, and auto finance subsidiaries, are highly profitable.

|Hubris Took Over'

Nevertheless, Ford officials privately admit they were naive about the thrift industry when they bought First Nationwide.

That's a judgment Mr. Frank shares. "A kind of hubris took over," he said. "The people from Dearborn thought they could run it better than the specialists."

People familiar with Ford's thinking as well as current and former company insiders said Ford's decision to dump First Nationwide reflects a disillusionment that began five years ago when the thrift's dizzying growth began to severely erode profits.

Mr. Frank, First Nationwide's longtime chief executive, launched the thrift on a path of interstate expansion four years before the Ford acquisition. Under Mr. Frank, First Nationwide bought three major thrifts.

Failing Thrifts Purchased

Once Ford took over, the buying spree accelerated. After it was acquired by the automaker in 1985, First Nationwide bought 12 more thrifts across the country, mostly failing institutions shopped by federal regulators.

By the end of 1988, First Nationwide had leaped to some $34 billion in assets, with 504 branches in 15 states.

But First Nationwide's strategy was flawed. It planted the flag as widely and rapidly as possible with little regard for the quality of the operations acquired or for the market share available in the new locations.

Under Ford, it tried to make up for these shortcomings by lending aggressively. It rapidly built risky portfolios of real estate development loans and long-term mortgages to apartment building owners. In 1988, the thrift earned a puny $3.3 million, down 95% from the year before.

Cost-Cutting Drive

That year, Ford called an abrupt halt to the thrift's breakneck expansion and sent in John M. Devine, a finance specialist from its truck division, to take effective control. Mr. Devine formally became chief executive in 1991.

Mr. Devine zealously cut costs and lopped off marginal parts of the business. Operations in seven states were either closed or sold. Assets dropped to $16.7 billion by September 1993.

But, as Mr. Devine was struggling to rationalize First Nationwide's franchise, credit problems skyrocketed. Nonperforming loans soared to $1.4 billion by the end of 1991, though they have come down to around $1 billion since. Meanwhile, a disastrous portfoliohedging strategy produced tens of millions of dollars in losses.

Sources familiar with Ford's thinking said the company concluded as early as three or four years ago that it would never get an adequate return on its First Nationwide investment and should consider a sale.

Regulatory Woes

Contributing to the decision was Ford's growing dissatisfaction with the regulatory environment. The 1989 savings and loan bailout law and the 1991 Federal Deposit Insurance Corp. Improvement Act imposed tight restrictions on thrift operations, forcing institutions to focus on home loans.

First Nationwide's 1992 agreement with thrift regulators to pay $400,000 in penalties for faulty internal controls and improper movement of funds between affiliates further soured Ford on the business.

Ford's move to put First Nationwide on the block reflects the company's view that a window of opportunity has opened.

"It's a pretty good time for two reasons," said one individual close to the company. Successful private rescues of troubled thrifts such as Glendale Federal Bank show that capital is coming into the industry.

Also First Nationwide has made strides in cleaning up loan problems and overhauling its branch network, making it more attractive to potential buyers.

A senior Ford insider put the case more strongly, claiming the thrift was on the road to recovery.

"First Nationwide is becoming a healthy stand-alone bank that makes money," the insider said. "That creates options for Ford - you can keep it or you can sell it."

First Nationwide has already transferred some $800 million in problem real estate development loans and depressed mortgage-backed securities derivatives to its holding company, First Nationwide Financial Corp.

The movement of portfolio problems to the holding company could make it easier to sell the thrift subsidiary, sources close to the company noted.

Few Prospects

However, Ford has a thorny problem if it tries to peddle all of First Nationwide as a package. Investment bankers said there are few, if any, natural buyers for the entire franchise.

Ford has already approached the most logical choice, H.F. Ahmanson, parent of Home Savings of America, the nation's largest thrift. Home's operations overlap with First Nationwide in California, New York and Florida, providing opportunities for cost-saving consolidations. But it is still unclear whether Ahmanson is interested.

Golden West and Great Western Financial Corp., the nation's second- and third-largest thrift companies, also compete with Ford's thrift in several states. But investment bankers believe it is unlikely either would bid on the holding company and its subsidiary.

Ford is asking buyers to pay First Nationwide's full book value, roughly $1.2 billion. Investment bankers say the price is unrealistic unless Ford agrees to keep virtually all of the thrift's problem assets.

Whether or not Ford succeeds in selling First Nationwide, the experience has been a humbling one for the automaker.

"This is a first-class company that has never panicked and has not attempted to do things that are short term," said one company insider. "But we have to recognize that the thrift business has changed. We just got caught up in a lot of changes."

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