greatwest/dy/18"/mike1st/mark2nd

DOUGLAS YOUNG Staff Reporter

And then there were none?

In the midst of H.F. Ahmanson & Co.'s ongoing battle to acquire Great Western Financial Corp., analysts and thrift executives were warning that when the dust settles, L.A. might be left without either financial institution.

With Washington Mutual Inc. now in the bidding war for the Chatsworth-based thrift, analysts say that Ahmanson's position becomes precarious not only in its efforts at acquiring Great Western but in its very long-term survival.

Todd Pitsinger, an analyst at Friedman Billings Ramsey & Co., said that failing to acquire Great Western could put Ahmanson in immediate danger of being acquired itself by a larger financial institution looking to enter the Southern California market.

Ahmanson President and Chief Operating Officer Bruce Willison disagreed with Pitsinger's assessment.

"I don't think there's any greater pressure on us if Great Western were to be bought by somebody else than there is today It's not like, if this happens, then all of a sudden we're in jeopardy," he said.

But he acknowledged that it will be tough for an institution of Ahmanson's current size to remain independent in the years ahead.

"We think consolidation in this industry is only about one-third done, and that is going to continue over the course of the next decade," he said.

Independent survival will be especially hard for so-called "mid-sized" financial institutions with $40 billion to $50 billion in assets, which describes Great Western and the two thrifts competing to buy it.

Such institutions have become very attractive takeover targets for larger, growth-oriented financial institutions looking to secure a significant regional presence with a single acquisition.

Even if Irwindale-based Ahmanson acquires Great Western, giving it the asset size of a major national player (about $93 billion), the new Ahmanson would still have to move fast to shed its traditional dependence on mortgage lending and become more bank-like in order to retain its independence in the long term, analysts said.

Willison painted a banking landscape of the future populated by national coast-to-coast players and small niche players, with mid-sized regional players facing tremendous pressure.

"I think (that mid-sized range) will be the size where the greatest skill in managing profitability would be required, because you're too large to be a niche player and you've got less size for some of these economy-of-scale issues. It would take some very skillful management," he said.

It is Ahmanson's desire to realize those crucial economies of scale, and thereby decrease its own vulnerability to takeover, that led the company to launch its hostile $6 billion bid for Great Western on Feb. 18.

Similar considerations are also likely driving Seattle-based Washington Mutual, which launched a $6.6 billion friendly takeover bid for Great Western last week. Acquiring Great Western would propel Washington Mutual from its current asset size of $45 billion to $87 billion.

In response to Washington Mutual's bid, Ahmanson said it is "still fully committed to a proposed transaction with Great Western."

Pitsinger said that even if Ahmanson succeeds in buying Great Western, the resulting mega-thrift would have to move quickly to become more bank-like or risk being acquired by a larger, more-profitable institution.

Such a transformation would require Ahmanson's main operating company, Home Savings of America, to offer more consumer and business lending and banking services, which it began doing last year, and become less dependent on the highly competitive home mortgage business, according to Pitsinger.

"Relative to thrifts, Ahmanson's returns are pretty decent. But Ahmanson will eventually be judged vis- & #341;-vis commercial banks," he said.

Pitsinger noted that Ahmanson's current return on equity ratio, at nearly 15 percent, is impressive by thrift standards. But it still falls far short of the 20-percent range being posted by the nation's strongest banks. (Return on equity is defined as after-tax earnings divided by an institution's equity.)

Willison acknowledged that the coming years could be pivotal ones for Ahmanson, and that nothing is certain in the rapidly consolidating industry.

"Over the long term, every financial institution is susceptible. It's going to be very interesting and a lot of fun over the course of the next few years," he said.

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