Stocks: Glendale Federal Rises In Lively Trading After PaineWebber

Shares of Glendale Federal Bank advanced in active trading Thursday after analyst Gary Gordon of PaineWebber Inc. sharply raised his earnings estimates and lifted his investment rating to "attractive" from "neutral."

The stock of the California thrift institution, the nation's seventh largest with assets of $16 billion, gained was up 50 cents, or 4.2%, to $12.50 per share in afternoon trading.

Volume was 480,600 shares, versus typical daily turnover of 165,000 shares.

"Their fiscal third-quarter results made me realize I was way low in my earnings forecast," Mr. Gordon said. "I moved up to a $1.25 in their operating earnings next year, fiscal 1996, from 75 cents." (See report on page 4.)

The analyst noted that Glendale sold off its Washington State subsidiary during the winter quarter. First Interstate Bancorp paid $205 million for University Savings Bank of Seattle.

While the sale produced a gain for Glendale, Mr. Gordon had feared the deal would weaken the thrift's operating earnings.

In fact, Glendale's operating earnings went up.

"Expenses went down nicely with the sale, but interest income didn't drop as far as I had thought it might," he said.

Meanwhile, he said, Glendale "is building up its deposits at a rapid rate. They are paying more for them than competitors, but not that much more."

In addition, Glendale's nonperforming assets fell during the March quarter, a period when they normally trend upward, the analyst said. Most important, the thrift's net interest margin increased again in March after a gain in February.

Besides the thrift's strong earnings, Mr. Gordon said, "there are two wild cards: the possibility of a takeover and their goodwill lawsuit."

Glendale is widely viewed within the investment community as a takeover candidate for a bank seeking to enter or expand within California.

The rebuilding and streamlining efforts of its aggressive chief executive officer, Stephen J. Trafton, are seen as sweetening any deal for its shareholders.

Sizable holdings of the thrift's stock by active investors like Michael Price of Heine Securities, Short Hills, N.J., have added to the general feeling that a takeover relatively soon is a strong possibility.

Meanwhile Glendale awaits a federal appellate court ruling in its lawsuit to force the government to pay it $1.4 billion in damages for reneging on a promise to let it count as regulatory capital the goodwill from its assisted purchase of a failing Florida thrift.

Glendale won the first round of the legal battle.

Most of all, Mr. Gordon said he is impressed by Mr. Trafton's successful turnaround of Glendale.

"He took a company that should have gone bankrupt, did all the hard work of cutting expenses and nonperformers, and created one that now has very strong capital," Mr. Gordon said. "He's an absolute bulldog."

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