Great Western To Cut 800 Jobs And Close 110 Loan Offices

Moving to cut costs, Great Western Financial Corp. announced Monday that it would lay off 800 employees and close more than half its 22 home- loan processing centers.

The $43.5 billion-asset thrift, the nation's second-largest, also said it would close 10 high-cost branches and, by the end of next year, drastically shrink its Chatsworth, Calif., headquarters.

John F. Maher, president and chief executive, said in a prepared statement that the actions would "intensify Great Western's focus on achieving and exceeding a ... return of 15% on stockholders' equity." By the end of 1997, the company said, these and other cost-cutting measures would increase earnings by $40 million to $45 million a year.

Burdened by high overhead, by poor performance of its California loans, and by shrinking margins in its core mortgage business, Great Western - like many of its peers - has struggled with subpar profits in recent years.

Some big thrifts - most recently Standard Federal Bank, Troy, Mich. - have chosen to be bought by banks or larger thrifts as a way of building up their more profitable consumer and commercial banking businesses. Indeed, analysts said, Monday's announcement makes Great Western more attractive to potential buyers.

"The company is identifying the parts of their operation that are not profitable and getting rid of them," said Caren Mayer, an analyst at Montgomery Securities, San Francisco. In addition to the cutbacks in staff and facilities, Great Western said it would sell $300 million of nonperforming assets, mostly home loans.

In the fourth quarter, the cost-cutting measures will carry a pretax price tag of between $115 million and $130 million. Analysts said the charges would likely wipe out the quarter's earnings, which had been projected at 50 cents a share. Great Western's stock fell 50 cents Monday, to $30.625.

In another move, the thrift said last week it would sell its student loan business, which includes $370 million in outstanding loans, to Crestar Bank, Richmond, Va. Earlier this fall, Great Western disclosed it was shopping for a buyer for its mutual fund subsidiary, Sierra Capital Management.

Of the cuts announced Monday, the biggest will be in the thrift's core mortgage business, which is off 22% from last year. Through the third quarter, Great Western had originated $4.4 billion in home loans, down from $5.8 billion in the first nine months of last year.

But, the thrift positioned Monday's announcement as a sign that it wants to return to its former dominance of the mortgage market.

"We want to be and need to be a lower cost provider of (home) loans, because the mortgage business is very competitive and operates on relatively tight margins," said Ian Campbell, senior vice president at Great Western.

"Our objective ultimately is to recapture the position we held five years ago when we were one of the top five (home) lenders in the U.S.," Mr. Campbell said.

Analyst Jonathan Gray of Sanford C. Bernstein & Co. said he thinks the company is running the risk of "gutting its market share and demoralizing its sales force." Already, Great Western's share of the national adjustable-rate market has declined from 2.7% in 1993 to an estimated 2.2% this year, he said.

Almost half of the 800 employees to be laid off have already been notified, Mr. Campbell said. Most are appraisers, who estimate the value of homes, and less-effective sales personnel, he said.

Great Western is also further centralizing the processing of home loans, and will likely close half or more its 22 regional loan processing offices, Mr. Campbell said. The thrift is also phasing out existing technology, as it reengineers its origination operation.

Mr. Campbell said Great Western plans to boost its origination by becoming more active in the fixed rate loan market, and targeting market niches, such as jumbo loans and government insured loans.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER