Great Western to Buy Most of Failed HomeFed : Thrifts: The Chatsworth-based savings and loan would pay about $155 million for 119 branches.

WASHINGTON — Great Western Bank, moving to become a financial powerhouse throughout California, has won a sealed-bid auction for the right to buy 119 branches with more than $4 billion in deposits from the failed HomeFed Bank in San Diego, banking industry sources said Tuesday.

Chatsworth-based Great Western, the nation’s second-largest savings and loan, would add a potent San Diego presence to its already powerful network in the Los Angeles metropolitan region and its outlets in the Central Valley and San Francisco Bay Area.

The purchase, scheduled for formal announcement Friday, would give Great Western “pretty good representation in major metro areas throughout the state,” an official close to the expected sale said.

It would mark another major step on the road to consolidation for the nation’s shrinking thrift industry as it rebuilds from the failures and scandals of the 1980s. More than 720 S & Ls have failed since 1989, including many well-known names in California, costing U. S. taxpayers about $85 billion.

The industry’s survivors have focused on basic home mortgage lending that the thrift industry was founded on before moving into risky commercial ventures that often turned sour in the 1980s.

HomeFed was seized by the federal government in July, 1992. Covering its losses has cost the government $1.2 billion so far, a price tag likely to rise and make it the biggest failure ever handled by the Resolution Trust Corp., the thrift cleanup agency.

The fate of HomeFed’s 2,300 employees was uncertain Tuesday, but sources close to the auction said they should expect “fairly significant consolidation” resulting in layoffs and some branch closings.

Sources said Great Western will pay “in the neighborhood” of $155 million for the branches, an amount representing more than 3.5% of deposits, a relatively high price for thrift acquisitions. Few premium networks like these are available for sale, noted Bert Ely, a thrift consultant in Alexandria, Va.

The acquisition would give Great Western, already the state’s biggest thrift network, a total of 358 branches. In terms of deposits in California, Great Western would become the third-largest financial institution, with deposits of $24 billion, ranking behind $41 billion for Wells Fargo and $78 billion for Bank of America.

Great Western has managed to stay afloat in a troubled industry by remaining close to its traditional business of making home mortgage loans.

But it too has struggled recently under a burden of foreclosed properties and delinquent loans. So far this year, it has sold nearly $1 billion in distressed assets.

In its third quarter that ended Sept. 30, Great Western set aside another $100 million in reserves in anticipation of bulk sales of bad loans and other non-performing assets. That resulted in a quarterly loss of $17.5 million, in contrast to a $31.7-million profit in the same quarter last year.

But in unloading the troubled loans, Great Western managed to reduce its level of non-performing assets from 5.2% earlier this year to 3.75%, and its executives expect to get the ratio below 3% with the new sales.

Great Western Chairman James F. Montgomery also announced in August plans to make deep cuts in payroll and administrative costs by year’s end. The reductions could result in the loss of up to 1,800 jobs, mostly at the Chatsworth headquarters.

Besides problem loans, thrifts like Great Western have also suffered because of growing competition from mortgage banking chains, such as Countrywide Funding in Pasadena and American Residential Mortgage in San Diego. These companies often offer lower-priced loans because they have lower overhead expenses than large thrifts.

The 18 HomeFed branches that Great Western is not buying will be divided up among two or more other bidders, sources said. Great Western and other bidders--said to include First Interstate Bank, Home Savings of America and Household Bank--all declined to comment. The purchases are expected to be announced by the RTC.

For Great Western, the proposed acquisition represents a sterling opportunity to increase its presence, particularly in affluent San Diego County.

Great Western now has only 19 branches in San Diego and will add 58 branches through the new purchases. It will move from seventh place to third in the San Diego thrift market. The other 61 HomeFed branches to be acquired are scattered in five different Southern California counties.

Great Western would become the nation’s second-largest thrift in the volume of deposits, with $32 billion, compared to $39 billion at H. F. Ahmanson, parent of Home Savings.

Regulators have been dismembering HomeFed since July, 1991, when chief executive Robert Adelizzi was forced to resign and was replaced with Thomas Wageman, a government-anointed caretaker. Branches have remained open, but regulators have been selling off its bad loans in nationwide auctions ever since.

Rosenblatt reported from Washington and Kraul from San Diego. Times staff writer Patrice Apodaca contributed to this story.

State’s Biggest Banks

California branch office totals: Bank of America: 1,179 Wells Fargo: 673 Great Western Bank: *358 First Interstate Bank: 341 Union Bank: 228 Home Savings of America: 193 American Savings: 166 HomeFed Bank: 137 Glendale Federal Bank: 132 California Federal Bank: 116* Includes 119 HomeFed branches

Source: PC InfoBank, California Bankers Assn.