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Sunday, Dec 3, 2023

Washington Mutual

Washington Mutual Inc. is coming to town, and in keeping with the personal style of its chief Kerry Killinger, that arrival is occuring in a very big way.

But as impressive as swallowing Chatsworth-based Great Western Financial Corp. may be, Washington Mutual is expected to pursue even more Southern California acquisitions in the months and years ahead.

In the last two years alone, Killinger has taken Washington Mutual from an institution with no business in Southern California to one that has a huge and growing presence here.

After the pending acqusition of Great Western is complete, about $60 billion of Washington Mutual’s $87.5 billion in assets will be in California. The amount in Southern California could not be readily determined, according to Washington Mutual officials and thrift industry analysts, but it is considerable and will grow.

“We would expect the California market to be our largest market going forward,” Killinger told the Business Journal last week. “We’ll have significant operating support throughout Southern California, including Chatsworth and Irvine.”

Industry analysts said Great Western could be just an appetizer before Killinger returns to the trough in two years or so to purchase another local thrift, one of the biggest possible targets being H.F. Ahmanson & Co.

Appropriately, Killinger came to Seattle-based Washington Mutual in 1982 as the result of a merger between his former employer Murphey Favre and Washington Mutual.

Since joining the thrift, Killinger has risen through the ranks to become chairman, president and CEO, acquiring 18 institutions along the way and building Washington Mutual from a conservative regional savings bank with 39 branches into what will soon be the nation’s largest savings and loan institution.

Approval of the Great Western merger at a special shareholders meeting this Friday, June 13, would catapult Washington Mutual into being the third largest financial institution in California, behind only Bank of America and Wells Fargo Bank.

Killinger said he will continue to study acquisition possibilities in the future, although integrating Washington Mutual with Great Western is his priority for the moment.

However, Killinger’s continued appetite for acquisitions is apparent from Washington Mutual’s recent issue of $400 million in trust preferred securities, which are likely earmarked in part for future purchases, according to Todd Pitsinger, an analyst at Friedman Billings Ramsey & Co. Inc.

“Washington Mutual is in a position to continue acquiring companies. It has no intention of buying back stock,” Pitsinger said. “I think Killinger will use the (preferred securities) money for further acquisitions,” Pitsinger said.

Indeed, Killinger’s recent, dramatic entry into L.A. has local financial institutions large and small keeping a watchful eye, though nobody is sounding the alarm bells quite yet.

Officials from BofA and Wells Fargo said Southern California’s fiercely competitive banking market will pose challenges for Killinger as well as themselves, as Washington Mutual’s market share in the region grows.

“Certainly Washington Mutual would be a strong competitor, and the proposed merger just underscores how competitive our industry is,” said BofA spokesman Cary Walker. “It’s another competitor in the marketplace, and that presents us with both challenges and opportunities.”

Wells Fargo spokeswoman Kathleen Shilkret expressed similar views: “The Los Angeles area is one of the country’s most competitive markets for banking. There may be a different competitor, but it still won’t affect the overall equation.”

But while Wells and BofA appear to have a “live and let live” attitude, Killinger expresses a much more aggressive California strategy.

“In combination with Great Western, we see the opportunity to become the leading home lender in the state. Our long-term strategy on consumer business is to be the major alternative to BofA and Wells Fargo. There’s a large percentage of consumers that prefer business with our approach,” Killinger said.

That approach involves a heavier focus on personal service and lower fees for consumer banking products, he said.

Over the long term, he added, Washington Mutual would like to boost its market share for residential lending in California to 10 percent. BofA is currently the biggest residential lender in California, with about a 6 percent market share, according to John Karevoll, financial editor with real estate research firm Axciom/DataQuick.

Meanwhile, executives from L.A.’s thrift community expressed wait-and-see attitudes similar to those expressed by BofA and Wells Fargo.

“It’s going to be interesting to have an $80 billion thrift being run out of another state. It certainly isn’t the best situation for them,” said Babette Heimbuch, president and CEO of First Federal Bank of California, a thrift in Santa Monica with $4.2 billion in assets.

Scott Braly, president and CEO of Hawthorne Financial Corp., said smaller niche-oriented thrifts have less to fear than larger financial institutions.

“From my standpoint it makes no difference big is big,” Braly said. “Based on what I know, Washington Mutual tends not to compete in the areas we do, except maybe tangentially.” Hawthorne’s niche is non-residential real estate financing.

Just how Washington Mutual will change the L.A. banking scene remains to be seen, but one challenge for Killinger in the more immediate future will be integrating Washington Mutual’s systems and product offerings with those of Great Western, if the merger is approved.

He will also have to indoctrinate Great Western’s employees, who are used to a relatively conservative style of business, with Washington Mutual’s more aggressive approach.

Other tough decisions ahead will include determining the magnitude of layoffs at Great Western, which branches to close and whether to leave Washington Mutual’s Southern California headquarters at its current site in Irvine or move it to Chatsworth.

But industry analysts said similar systems between Washington Mutual and Great Western will help Killinger pull off the merger in relatively painless fashion, avoiding many of the problems that plagued Wells Fargo in its hostile takeover last year of First Interstate Bancorp.

“There will be something of a market disruption, as various American Savings units are integrated into Great Western’s,” said Pitsinger. “But it probably won’t be much of a disruption to the community, and consumers probably won’t notice the change.”

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