As interest margins on the core mortgage business of thrifts declined in the late 1980s, Great Western Bank, Chatsworth, Calif., became one of the first large institutions to adopt a more banklike strategy.

It tried to reduce its cost of funds by offering not just certificates of deposit but checking and money market accounts, which bring in funds at lower interest costs. It also entered higher-yielding businesses, such as auto lending.

As chief financial officer since 1987, Carl Geuther has been an architect of Great Western's effort to become more like a bank.

In an interview, Mr. Geuther said Great Western's approach had reduced its cost of funds, thus wringing more profit from its bread-and-butter adjustable-rate mortgages, linked to the 11th district cost-of-funds index.

Now that large rivals are adopting the same strategy, Great Western will redouble its efforts to attract low-cost checking accounts, Mr. Geuther said. And it is offering ARMs linked to other indexes as well.

Q.: What is your funding mix now?

GEUTHER: Right now, transaction balances - money market funds, checking, etc. - represent just under 40% of total liabilities, which is down some from a year ago.

Q.: Is that pretty much the mix that you would like, or do you want more checking accounts?

GEUTHER: I think checking currently represents about 15% of total deposit liabilities. For us to continue to build revenue base, checking accounts have got to continue to grow.

Q.: Ruling out cyclical variations, have you seen your cost of funds fall substantially?

GEUTHER: Absolutely. We compare our cost of funds to the 11th district cost of funds.

In the late '80s we would average 20-25 basis points below the district. That number now has widened to 40-50 basis points below the district.

Q.: Will your advantage narrow as other large thrifts pursue checking accounts?

GEUTHER: If everybody follows a similar strategy and everyone is as successful with that strategy, our advantage to the index would tend to narrow. But we're not going to stand still.

Q.: Will you have to work harder to maintain your edge over the index?

GEUTHER: Yes. I would agree with that.

Q.: What are the barriers to this funding strategy?

GEUTHER: I think there are several. To some degree, there are demographic barriers, because thrift institutions have tended to focus their attention on single-product, saver-type customers who are CD-driven, almost exclusively.

Then, there are barriers of your own employee base, your own culture in the organization. It wasn't a sales-oriented culture.

Q.: How do you think the business of making COFI loans would be affected once the bank and thrift charters merge, and the thrift industry becomes more banklike?

GEUTHER: I don't think the merging of the charters is an event in the evolution of the COFI index. This has been an evolutionary process over the last several years as savings and loans have either been acquired or some have failed. Some have executed more banklike strategies. That will continue.

As the index continues to evolve, we and probably others have chosen to try and diversify away from a pure reliance upon a COFI mortgage instrument. We have, probably, roughly 25% of our earning assets right now in something other than a COFI loan or COFI mortgage security.

We've got an investment portfolio. We've got some short-term fixed-rate loans. We've got alternative adjustable-rate products, linked to Treasury and Libor rates.

Q.: At least one large thrift, World Savings Bank of Oakland, is sticking to raising funds through certificates of deposits. Do you think that strategy will work?

GEUTHER: Well, I guess it's possible. Certainly, we applaud Golden West for adopting a relatively conservative credit profile and certainly a cost- structure conservatism. It has worked, historically.

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