NEWPORT BEACH — Some stock analysts have long considered Downey Savings &Loan a sleeper company--a profitable, well-run S&L that hasn't attracted much attention on Wall Street.
Others thought the thrift was simply asleep.
Now, Downey's new managers, Robert L. Kemper and F. Anthony Kurtz, are trying to rouse any slumbering parts of the Newport Beach thrift and give Wall Street a wake-up call.
But before they get started, they have to get everyone at the institution used to a new way of doing things. That can be tough at a successful, long-established S&L operated by its two co-founders for 35 years.
Kemper and Kurtz acknowledge that they can't please everyone on the 935-employee staff.
"There's a difference between owners running a business and professionals running a business," said Kemper, Downey's chief executive. "You need a different set of internal controls. It has nothing to do with good or bad practices before."
Employees trying to adjust to a new management structure with formal lines of authority sometimes step out of line. They are quickly straightened out, Kemper said.
The new team also faced some tense moments with co-founders Maurice L. McAlister and Gerald H. McQuarrie, who have searched for several years for successors.
"The process was not unlike putting your children up for adoption," said Kurtz, Downey's new president.
In their first interview since taking over at Downey, Kemper and Kurtz talked about some of the changes they've made and their plans for the future.
Under the "two Macs," as they came to be known, Downey built a reputation for conservative home lending and a highly profitable business of developing neighborhood shopping centers and residential tracts. It escaped most of the troubles that brought down so many other S&Ls: incompetence, economic woes and outright fraud.
Yet it hasn't been setting Wall Street on fire, partly because its conservatism has also limited its growth. That's something the two Ks, Kemper and Kurtz, hope to change.
The outside world won't notice much of a change, they said. The thrift will continue to offer its traditional products, such as checking and savings accounts and home loans.
But they have restructured the staff, replacing certain executives with their own people. And they plan to be much more aggressive in originating loans and acquiring other thrifts or their branches.
The effort is aimed at increasing Downey's market share, asset size and profits, and shoring up its lackluster stock performance. The thrift's stock has been trading below its $17-a-share book value--the net value of its assets if they were liquidated and debts were paid. The thrift has $3.8 billion in assets.
The stock closed Monday at $13.375, down 62.5 cents a share in New York Stock Exchange trading. It has rebounded from its 1991 low of $10.625, but remains well behind its all-time high in the late 1980s of $24.125.
"There's still not a terrible amount of interest in Downey stock," said James F. Wilson, an analyst with Montgomery Securities in San Francisco.
Downey's earnings fell to $24.9 million last year from $42 million in 1990. Its assets and loans were also down from the previous year. Downey is under a federal mandate to rid itself of most of its real estate holdings, a difficult task in a recessionary market.
But perhaps its toughest sell is Wall Street. Wilson is one of a few analysts--mostly on the West Coast--to cover Downey. New York ignores the thrift.
"You don't get much clout until New York recognizes you," Wilson said. "And it's tough to get positive momentum."
Other analysts are more optimistic. Donald Crowley of Keefe, Bruyette & Woods in San Francisco is recommending the stock to investors.
"Our view is quite positive," Crowley said. "It's got very high-quality assets, and its problem assets are even lower than Golden West's," the parent of highly touted World Savings & Loan in San Francisco.
One thing all the analysts agree on is that the hiring of Kemper and Kurtz was a good move by the directors and the two co-founders, McAlister and McQuarrie, who founded the thrift in 1956.
"Kemper is very sophisticated, and we're favorably impressed with Kurtz as well," Crowley said.
Kemper, 62, is a former vice chairman of Wells Fargo Bank, where he worked for 27 years. In recent years, he was director of the National Center on Financial Services at UC Berkeley and managing director of a New York merchant bank.
He was hired in July, 1990, as chairman of Great American Bank to try to rescue the failing San Diego thrift. It was there that he met and hired Kurtz as his executive vice president and chief financial officer.
Kurtz, 50, who was chief financial officer of the company that owns the Price Club chain, had held the same position at H.F. Ahmanson & Co., the parent of Home Savings of America. Kurtz had been with Ahmanson for 20 years.