Thrifts nationwide are moving into the high-profit-margin land of subprime lending, but analysts and regulators warn they could find the volatile sector rough going.

"Everyone, behind the scenes, is looking at it," said Carl B. Webb, chief executive of California Federal Savings Bank, Los Angeles. Mr. Webb said he has been eyeing the market for the past year and has even bid on a few deals. "We've had an interest for some time in subprime auto and mortgage lending ... there's a good profit potential there," he said.

Several thrifts have already entered the market-Bay View Federal Savings, San Mateo, Calif., with its purchase of an auto financier, and Avondale Federal Savings Bank, Chicago, with its brand new Internet- generated subprime mortgage program, for example.

But overly aggressive activity in the high-risk market, especially by smaller thrifts, could be disastrous, observers warn.

"It's a business that's already giving some of the more experienced participants headaches," said Gareth Plank, an analyst with UBS Securities. "And new entrants always get adversely selected."

Making loans to consumers with less-than-perfect credit carries balance- sheet risk, regulatory risk, and puts stress on an institution's credit skills, analysts said.

And "thrifts have not had their credit skills tested," said Steven Schroll, analyst with Piper Jaffrey, Chicago. "They had problems in the '80s making A loans," he noted.

Interested thrifts should not try to learn the business on their own, Mr. Schroll said. "They should take the capital they have and go buy the expertise."

There is no "short cut to the subprime business," Mr. Schroll said. "When you get into problems, you need to have experienced management that recognizes them, so you don't get blindsided."

The recent interest makes the Office of Thrift Supervision nervous, said John Price, director of supervision policy for the regulatory agency.

"We've seen an uptick in subprime lending" at thrifts, since early 1996, he said, and the OTS is "closely monitoring" developments in the market. In addition, the agency is beefing up guidelines it gives its examiners, telling them to take a closer look at subprime lending activities, he said.

For its part, CalFed is being "very slow and analytic in its approach," Mr. Webb said. "We have no mandates to attain a certain size by a certain time," he said.

Executives at subprime companies say that CalFed has approached them recently, offering jobs and asking advice about the market. The thrift has not decided yet whether it wants to buy into the market, or build a start- up subprime division, Mr. Webb said.

The meltdown of the subprime auto sector-which began in late January when Mercury Finance Co., Lake Forest, Ill., announced it was restating earnings due to fraudulent accounting-has given CalFed pause, Mr. Webb said. "But we think fundamentally underlying all that is a good basic market," he added.

With the thrift crisis of the '80s as a backdrop, observers say the Federal government may be more likely to act early to control risky activity, if problems surface in the subprime sector. "Although the last thrift bailout has started to fade from memory," most of the Congressmen that did the bailing are still there, Mr. Plank said.

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