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Washington Mutual: 1 Merger Too Many?

Banking: Thrift's chairman still has high expectations for its acquisition of H.F. Ahmanson. But customer service concerns and a languishing stock have some analysts expressing doubts.


For years, Washington Mutual has enjoyed the best of two worlds.

On Wall Street, Chairman Kerry Killinger is seen as a lean, mean acquisition-making machine who built the nation's largest thrift.

On Main Street, the Seattle-based company won over customers with its hometown appeal and "people-friendly" tellers, positioning itself as an alternative to the impersonal customer service of big banks.

But as Washington Mutual puts the final touches on its $6.9-billion acquisition of Irwindale-based H.F. Ahmanson, parent of Home Savings of America, those two worlds are starting to collide.

Investors have grown impatient about Washington Mutual's slowness to bring the promised savings from the Ahmanson merger to the company's bottom line, partly because of some unforeseen expenses needed to upgrade old branches. Some analysts wonder whether this time the ambitious Killinger--who has completed 11 acquisitions worth $25 billion during the last five years--bit off more than he can chew.

Concern about higher-than-expected mortgage prepayments led several analysts recently to lower their profit expectations for Washington Mutual, and its stock, whose price has been flat this year, continues to trade more cheaply than its peers. "It's a very unloved stock," said Jay Tejera, an analyst at Ragen MacKenzie in Seattle. "The company is hitting its numbers [for cost savings], but they also are spending more in ways they didn't tell people about. Wall Street is a little disappointed that those profits are not falling to the bottom line."


Meanwhile, consumers are striking at one of the hallmarks of Washington Mutual's success: its customer service. Branch closures--including more than 100 in Southern California in late May--have led to long lines and short tempers at some locations. In Laguna Hills, teller lines snaked out the door recently and employees urged customers to try other branches. In Manhattan Beach, full-time parking attendants are needed to direct traffic.

Friendly service? Customer Bert Gibbs says a Washington Mutual employee hung up on his wife when she asked for his name so she could complain about his attitude. And Sherman Oaks retiree Ralph Klein, a former Home Savings customer, says the thrift mistakenly rejected his monthly pension annuity check when his account converted to the new system in June, leaving him short of cash for nearly three weeks until the problem was straightened out.

"It's become a zoo," sighed a Tustin customer recently, complaining that she frequently must drive around the parking lot in search of a space. "It used to have a local feel, but this reminds me of BofA."

Is Washington Mutual becoming what it once poked fun at in its TV commercials: a giant California bank more worried about serving shareholders than customers?

Absolutely not, Killinger vows.

"We are committed to being the leader in customer service," he said. "And all the surveys we've seen support that our level of customer service is superior to the other major banks."

Killinger is credited with turning Washington Mutual from a sleepy Northwestern thrift with $20 billion in assets into a financial heavyweight with $174 billion today. He accomplished that chiefly by swallowing three California thrifts: American Savings in 1996; Great Western Bank in 1997; and Home Savings in 1998, shortly after Home had acquired Coast Federal Bank.

Though Killinger concedes that the merger has caused some minor interruptions in customer service, he said complaints and glitches from the recent Home Savings merger have been fewer than the thrift experienced in previous deals.

"Any time you come through a conversion, it puts stress on customer service," Killinger said. "But much of that is already starting to improve. . . . Overall, for a conversion of this size, customer reaction has been very positive."

So far, it's too early to know whether customers agree. Though Washington Mutual boosted its total checking accounts by 90,000, or 2%, during the first three months of the year, total checking account deposits dropped $381 million, or 3%.

The real test of whether customers are sticking with Washington Mutual will come later this year, as Southern Californians adjust to the consolidation.

"This will be a critical time," said Norman Katz, managing partner at MCS Associates, a bank consulting firm in Irvine.


Wall Street will be watching. Though Washington Mutual has earned a reputation for deftly executing its mergers, the disastrous 1996 marriage of Wells Fargo and First Interstate is still fresh in the minds of investors. Wells Fargo's stock sank 17% after computer glitches and poor service led thousands of Wells customers to flee, costing the bank billions in deposits.

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