Regardless of which company wins the fight for Great Western Financial Corp., Morgan Stanley's thrift analyst believes shares of both H.F. Ahmanson & Co. and Washington Mutual Inc. are worth buying.

On Wednesday Morgan Stanley analyst Kenneth A. Posner upgraded both Ahmanson and Washington Mutual to "strong buy" from "outperform." He set target prices of $46 for Ahmanson and $60 for Washington Mutual.

Ahmanson stock Wednesday rose 62.5 cents, to $36.625; Washington Mutual shares rose 50 cents, to $46.75.

The analyst cited strong first-quarter earnings posted by both thrifts, and predicted both will prosper thanks to strong econ-omies in their native regions, with or without Great Western.

"We think that the (Southern California) market is fragmented enough to allow Ahmanson to continue to improve its position, even with increased competition, at the expense of the many small thrifts and banks that still remain," he said in a report to investors.

Washington Mutual, he believes, will benefit from expected strong economic growth in the Northwest.

Morgan Stanley, because it is one of the few prominent investment banks whose merger and acquisitions advisers are not involved in the battle for Great Western, is also one of very few firms allowed to issue an investment opinion on the stocks.

Although some on Wall Street question the claims of potential cost cutting by both thrifts, Mr. Posner believes the stock of the winning bidder will rise.

Mr. Posner said he would raise his target price for the Seattle thrift by another 8%, to $64, if Washington Mutual wins. Should Ahmanson prevail, "We would likely raise our estimates," Mr. Posner said, but he was not ready with a calculation.

Mr. Posner said if interest rates rise by another 25 basis points that he would cut his earnings estimates for both thrifts by 5 to 10 cents. But he warned that rising interest rates could affect Washington Mutual's bottom line more than Ahmanson's.

This is because 50% of Washington Mutual's balance sheet is mortgages indexed to the federal cost of funds, "which are notorious for causing temporary margin compression," he said. As thrifts lower their costs of funds, they put pressure on the cost of funds index to drop further.

That means it is difficult for thrifts like Washington Mutual to lock in fixed funding costs through buying interest rate swaps or other kinds of derivatives, he said.

"Ahmanson's restructuring story is not dependent on interest rates," he said.

Great Western shares rose 12.5 cents, to $40.375. At current prices, Ahmanson's bid stands at $43.95 per share, and Washington Mutual's is at $42.08.

In other market news, embattled subprime auto lender Mercury Finance Co. released preliminary revised 1996 earnings, in which it said it expected a $48 million to $55 million loss. Originally the company reported a $56.7 million profit, but in January it disclosed that fraudulent accounting caused it to overstate earnings for four consecutive years.

In a press release, Mercury said Arthur Andersen LLP, its auditor, will soon issue a formal opinion that will "raise doubts about the company's ability to continue as a going concern, primarily because the company continues to be in default of its debt agreements."

Mercury stock closed down 25 cents, to $1.75. u

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