Montgomery, S&L Survivor, Maps Plan for Great Western

BEVERLY HILLS, Calif. -- For the past decade, the secret of James F. Montgomery's success has been making adjustable-rate mortgages. In the coming decade, by contrast, he plans to concentrate on steering customers out of high-interest CDs and into low-yielding checking accounts.

"In the 1980s, we changed the asset side of the balance sheet to floating rate," said Mr. Montgomery, chairman and chief executive of Great Western Financial Corp. "But the job for the 1990s is to change the character of the liabilities."

Especially in these times of low interest rates and sluggish economic growth, Mr. Montgomery's recipe seems to make a lot of sense.

Other thrift executives might do well to heed his advice. After all, Great Western, the nation's second-largest thrift, with assets of $39.5 billion, has come through the past decade with its capital and profits remarkably robust.

|A Good Strategic View'

"It is really a top-flight organization," said William S. Mortensen, chairman and chief executive of highly profitable First Federal Bank, Santa Monica. "Jim Montgomery has a good strategic view."

In 12 years as chief executive, Mr. Montgomery, 57, has put his stamp on Great Western. For example, the Kansas native collects Western art, and Western themes are used in Great Western's advertising.

Steering Clear of Problems

But there is no Hollywood razzle-dazzle here; Mr. Montgomery once worked for a Big Eight accounting firm. He has kept the thrift on top by sticking to floating-rate single-family mortgages and shunning the capital-straining acquisitions that many thrifts completed in the 1980s.

Great Western's success is based as much on what it didn't do as on what it did.

"Jim Montgomery has an uncanny sense of where the problems might lie in the future, and he tries to avoid them," said David Alexander, a Great Western director for 18 years who is the national administrator of the Rhodes Scholarship Program.

That's not to say Mr. Montgomery shuns a bargain. He has bought some branches and deposits from the Resolution Trust Corp. and seems ready for more.

He has also started making fixed-rate home loans again, because homebuyers want to lock in the current low interest rates. Ever conservative, though, he insists on selling all the loans on the secondary market.

Avoiding the CD Trap

But these days, Mr. Montgomery sounds more interested in generating low-cost deposits than in piling up more home mortgages.

Thrifts like Great Western have traditionally raised funds by issuing relatively expensive certificates of deposit, which can prove especially costly when rates fall. Transaction accounts avoid that problem and provide fee income.

Great Western hopes that over the next four years 35% of its deposits will be checking-type deposits, paying low interest or none. The percentage is 28% now, up from 20% two years ago.

"We've done well, but we have a long way to go," said Clifford A. Miller, executive vice president.

Shifting Gears

Indeed, Great Western has done better than most. Of total thrift deposits, only 7% are in checking accounts, according to the Federal Reserve.

The thrift began its campaign for checking accounts by retraining branch employees to push transaction accounts instead of CDs. Bonuses were given for those who met certain targets.

Next, in the summer of 1990 Great Western launched advertisements pointing out that it paid more on checking accounts than its rivals. Actor Dennis Weaver was the thrift's spokesman on the radio and television commercials. For the print ads, Great Western depicted its checks stacked atop of those issued by big commercial banks in its main markets, California and Florida.

"We have not run one CD ad during this year and a half," Mr. Miller said.

A Tilt Against Mergers

He hinted that a campaign to begin early December will aim at customers who might be feeling unhappy about the planned megamergers in California and the Southeast. In California, BankAmerica Corp. is merging with Security Pacific Corp. to form a $190 billion-asset bank. In Florida, Great Western will be competing with big merged banks such as NationsBank, the combination of NCNB Corp. with C&S/Sovran Corp.

Some analysts suggest that Great Western could gain market clout and cut costs through similar pacts. But Mr. Montgomery seems unimpressed.

"We don't feel we have to be in any hurry to be large or do dramatic things," he said.

Branching Out

In fact, Great Western has made seven Resolution Trust Corp. acquisitions in the past 16 months, including branches and deposits of the notorious CenTrust Bank of Miami and Lincoln Savings and Loan Association of Irvine. Mr. Montgomery is hungry for more in Great Western's primary markets.

He acknowledges an interest in HomeFed Corp., the ailing San Diego thrift, which has $11.3 billion in deposits. If regulators try one of the much-discussed open bank resolution programs on HomeFed, he said, Great Western would participate only if given some protection against losses on HomeFed assets.

To put all the new deposits to work, Mr. Montgomery is increasing Great Western's origination of fixed-rate loans. "We have not been competitive," he said. "We are becoming more competitive."

Because Great Western sells all of these loans in the secondary market, they cannot foul its pristine balance sheet.

Strong Performance

Great Western's results show how protective Mr. Montgomery is of the company's financial results. From 1985 to 1990, as many thrifts were failing, Great Western averaged a 13.09% return on equity. Mr. Montgomery's target is 15%, which the company has achieved in the past and is close to hitting again. For the first nine months, Great Western earned $227 million, or $1.71 per share, up 20% from the year-ago $189 million, or $1.47 per share. The nine-month earnings amounted to a 14.2% return on equity.

"They are consistently at the high end of thrift returns," said Bruce Harting, thrift analyst at Salomon Brothers Inc. in New York.

Big Spender?

Some analysts said Great Western's costs are too high. From 1985 through 1990, operating expenses equaled 55.7% of income. Other big California thrifts show similar figures -- except rival Golden West Financial Corp., renowned as a penny-pincher, which averaged 35.9% during the same six years.

Mr. Montgomery makes no apology.

"I believe in spending money to make money," he said. "Cost containment is good, but cost cutting is a desperation move and does not serve the company well."

He would rather trim interest expenses and increase revenue.

PHOTO : JAMES MONTGOMERY aims to corral check customers for his thrift.

PHOTO : James F. Montgomery Great Western Financial Corp.

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