Great Western Announces Sweeping Plan to Cut Costs

In a dramatic push to cut its overhead costs, Great Western Financial Corp. said Monday that it will lay off 800 employees, sell off delinquent home mortgages, overhaul its antiquated computer system, consolidate 10 branch offices and cut office space at its massive Chatsworth headquarters complex.

Analysts said the steps by the parent of Great Western Bank were overdue and will help bring the thrift’s operating costs more in line with its competitors.

All told, analysts said, these measures could bolster Great Western’s profit next year by $28 million. The moves will add up to $113 million to $128 million in pretax charges during Great Western’s fourth quarter.

“These are some fairly sweeping steps to move into 1997 with a smaller expense base and enhanced ability to grow revenues and our earnings,” said Ian Campbell, a Great Western spokesman.

But Wall Street’s response was lukewarm to the thrift’s plans. Great Western common stock closed down 50 cents at $30.625 on Monday.

The biggest financial hit from this list of moves is in the planned sale of $300 million in nonperforming mortgages, or about 1% of Great Western’s total mortgage portfolio.

These loans were made from 1989-92, before the Southern California recession hammered the residential housing market and drove many properties into foreclosure. Great Western will take a $50-million to $60-million pretax charge this quarter on the sale of its bad mortgages.

“It underscores the fact that although the economy has recovered in California, that these delinquent mortgages are a nagging problem for many thrifts, Great Western included,” said Thomas Theurkauf, bank analyst with Keefe, Bruyette & Woods in New York.

“Great Western has been slow in recognizing nonperforming loans, [and] as a result some of their peers” have turned in stronger showings, said Barry Rubens with California Research Corp. in Santa Monica, a bank-consulting firm.

Great Western admitted that its computer systems are outdated. To help streamline its business, it is replacing older computers with new equipment and will take $15 million in pretax charges to cover the cost.

In part because of its computer problems, it now costs Great Western about $4,000 for each mortgage that it writes, compared with about $2,000 for lower-cost lenders, analysts said. Great Western said these new moves will cut its overhead mortgage costs by about 20%.

The mortgage business has become intensely competitive this decade, with dozens of companies now competing nationally. Great Western lags well behind Countrywide Credit and Norwest Bank in its mortgage overhead costs, Theurkauf said.

Great Western once ranked among the top five mortgage lenders in the country but has slipped into the top 20.

Recently, Great Western has been trying to become more of a conventional retail consumer bank, and it has started writing small-business loans for the first time.

Although about 800 jobs will be cut by next year--or about 6% of Great Western’s work force--only 85 workers in Southern California will lose their jobs, the company said. Great Western currently has 13,200 employees nationwide.

Despite these steps, Great Western remains a possible takeover target for out-of-state banks hoping to buy a significant chunk of market share in California.

“Is the For Sale sign hanging out? I don’t think so. But you can’t rule it out with any thrift, including Great Western,” Theurkauf said.

NationsBank, headquartered in Charlotte, N.C., and Norwest Corp. in Minneapolis are potential buyers, Rubens said.

For years analysts have complained that Great Western was top-heavy in administrative costs, partly because of its 15-building complex in Chatsworth, which has about 1 million square feet of office space.

Great Western owns only a couple of those buildings, including a 10-story headquarters tower and an elaborate employee cafeteria. The company will sublet or buy out some of its leases, which are about halfway through a 25-year term. “In this day and age, it’s very difficult to justify that campus layout,” Theurkauf said.

Paring down its office headquarters space by about one-third will result in $20 million in pretax charges, Great Western said.

Great Western previously said it plans to sell its student loan business to Crestar Bank for a pretax profit of $23 million.

For the nine months that ended Sept. 30, Great Western posted net income of $111 million, down 31% from $162 million a year earlier.

Great Western has total assets of $43.5 billion and more than 400 branches in California and Florida.