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 NEW YORK, Sept. 10 /PRNewswire/ -- Great Western Financial Corp.'s (NYSE: GWF) senior debt is downgraded to `BBB+' from `A' and preferred stock to `BBB-' from `BBB'. Also downgraded is Great Western Bank's senior debt to `A-' from `A', subordinated debt to `BBB+' from `A-', and commercial paper to `F-2' from `F-1'. The credit trend for both entities is changed to uncertain from declining.
 Great Western's finance company subsidiary, Aristar Inc.'s `A' senior debt, `A-' subordinated debt, and `F-1' commercial paper are affirmed. Aristar's credit trend is stable.
 The downgrades reflect the company's subpar profitability due to high expenses relative to revenue generation and strong competitive pressures, continued asset quality problems due to the California economic recession and the uncertainty surrounding additional provisions, and charges for bulk nonperforming asset sales and cost- cutting measures. Somewhat offsetting these negatives is Great Western Financial's strong capital base of roughly $2.49 billion and solid liquidity, with 75 percent of assets invested in single-family residential mortgage loans and mortgage-backed securities at June 30, 1993.
 Profitability has been subpar due a high expense base, large loan loss provisions, and higher expenses in managing REO and delinquencies, despite wide net interest margins of 3.83 percent for 1993's first six months. Operating and administrative expenses were 59.82 percent of net revenue for the same period and have been increasing over the past several years, in part, due to the company's Florida acquisitions and strategy to increase transaction accounts. The company is aggressively reviewing the high expenses and is expected to begin major cost-cutting initiatives. The extent of potential related charges is unknown at this time, but could affect 1993's net earnings. Also, the company faces longer term issues relating to the increased competitive pressures from mortgage bankers. However, the bank continues to benefit from the lag in repricing its assets in this declining interest rate environment.
 The company continues to be adversely impacted by California's deep economic recession. Nonperforming assets (NPAs) totaled $1.95 billion, or 5.01 percent of assets, at June 30, 1993. For 1993's first six months the company took $148 million in provisions for loan losses bringing total reserves to $521 million or approximately 36 percent of nonperforming loans. Great Western announced a program to sell bulk NPAs. While the aggressive disposal of NPAs is positive for the company in the short term, it recognizes that additional reserves will be needed. Great Western's recent $200 million sale of single-family nonperforming loans will result in a $50 million additional loan loss provision. However, future single-family bulk nonperforming loan sales should not require as high of a special provision as the remaining nonperforming portfolio is of higher quality. Great Western's NPAs declined to $1.7 billion or approximately 4.5 percent of total assets as a result of the sale.
 The company has a strong capital base of $2.49 billion supported by very liquid assets. The bank's mortgage loan portfolio consists 87 percent of single family mortgage loans. Great Western Bank exceeds all fully phased-in capital requirements under OTS regulations with leverage ratio of 5.76 percent (3 percent required) and risk-based ratio of 11.8 percent (8 percent required).
 -0- 9/10/93
 /CONTACT: Teri L. Seelig, 212-908-0638, or Nancy E. Stroker, CFA, 212-908-0533, both of Fitch/

CO: Great Western Financial Corp. ST: New York IN: FIN SU: RTG

MP -- NY048 -- 0793 09/10/93 14:06 EDT
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Publication:PR Newswire
Date:Sep 10, 1993

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