Marion O. and Herbert M. Sandler, the wife-and-husband team that runs World Savings & Loan in Oakland, still readily recall the rock-bottom times of 1981 and 1982, when heavy losses washed away a quarter of the company's net worth.
"We had had 14 straight years of higher earnings," Marion Sandler said during an interview in her husband's spartan corporate office overlooking Lake Merritt. "It was very traumatic for us to lose money."
The Sandlers are not experiencing those traumas today. Golden West Financial, World Savings' parent company, earned $160 million last year--four times what it made in 1980--and $47.8 million in the first quarter of 1986.
World Savings is on the leading edge of an earnings explosion at California's major savings and loan companies, the 10 biggest of which made a total of more than $1 billion last year, thanks to rising loan volumes and dropping interest rates. Four years ago, these same financial institutions lost almost $200 million.
The comebacks have been somewhat lost amid the din of bad news about the savings and loan industry, including major real estate loan problems in California. Of 25 money-losing S&Ls placed under special federal regulatory supervision last year, two-thirds were based in California. The 25 lost nearly $1 billion in 1985.
Helping insulate the big S&Ls from their sickly brethren has been a combination of manpower--especially their large staffs of appraisers and experienced loan officers--and conservative lending practices, which so far have protected most of them from large numbers of non-earning loans. With the glaring exception of American Savings & Loan, the problem-loan levels of California's big savings and loan firms are far lower on a percentage basis than in the industry at large.
The 10 biggest California thrifts had a return on shareholders' equity of more than 19% in 1985, compared to the industry average of 12.2%, according to the U.S. League of Savings Institutions, a trade group. The return on assets for the 10 was 0.72%, almost double the industry average, the league said.
Seek New Identities
Very much intertwined with this financial performance is the story of how the big savings and loan companies are scrambling to carve out new identities to ensure that the hard times of 1981 and 1982 are never repeated.
Their strategies are being acted out on a kind of public proving ground that will determine where the savings and loan industry is going in the next decade and beyond. At stake is the way S&L customers will buy financial services in the future and to what degree investors will be rewarded by new strategies in a deregulated banking environment.
The changes are occurring in the wake of the early 1980s financial deregulationthat allowed--or expanded the authority of--S&Ls to make consumer, commercial and adjustable-rate mortgage loans and to offer checking accounts and market-rate savings accounts. Before the decade began, regulators dictated how much interest they could pay savers, and their loan portfolios were largely filled with long-term, fixed-rate mortgage loans.
"There are lot of different corporate strategies, but it's too early to tell which is the best," said Roger Lindland, chief financial officer of Great American First Savings Bank in San Diego.
The early results are in from Wall Street, though, and most of the votes so far are going to the parent companies of Great Western Savings (Great Western Financial), Home Savings of America (H. F. Ahmanson) and World Savings (Golden West).
"I believe when the dust settles, they are going to be the first three across the finish line," said Jonathan Gray, analyst for the New York investment house of Sanford C. Bernstein & Co.
Another grouping is made up of Great American and Home Federal Savings & Loan, archrivals in San Diego County and favorites with analysts.
Then there are First Nationwide Financial, the Ford Motor subsidiary with lofty national ambitions, and the parent companies of Glendale Federal Savings and California Federal Savings, both fighting for recognition as GlenFed Inc. and CalFed Inc.
Far down in the pack, according to analysts and competitors, is the parent company of Gibraltar Savings, which has retreated from some diversification attempts. Bringing up the rear is Financial Corp. of America, whose American Savings subsidiary remains saddled with nearly $2 billion of problem loans.
Led Way on ARMs
What happens at these 10 big California S&Ls has an industry impact far beyond their number. "It's like the auto repair industry in Kilgore, Tex., looking at a Ford or General Motors," said the chief executive of a large Midwestern savings and loan. "They're in another league."