Washington Mutual, Inc.

views updated

Washington Mutual, Inc.

1201 Third Avenue
Seattle, Washington 98101
U.S.A.
(206) 461-2000
Fax: (206) 461-2062

Public Company
Incorporated: 1994
Employees: 4,364
Total Assets: $21.63 billion (1995)
Stock Exchanges: NASDAQ
SICs: 6712 Bank Holding Companies; 6036 Savings Institutions Except Federal

Owner of the third-largest savings and loan in the United States, Washington Mutual, Inc. operates as the bank holding company for Washington Mutual Bank, its chief operating subsidiary, and various other financial services businesses. Included under Washington Mutual’s corporate umbrella during the mid-1990s were Washington Mutual Bank fsb, a federal savings bank, Washington Mutual Life Insurance Company, a life insurance company, Murphey Favre, Inc., a securities brokerage service, and Composite Research & Management Co., an investment advisor firm. Founded in 1889, Washington Mutual registered rampant growth during the 1990s as it expanded throughout the Pacific Northwest. In 1996, the bank nearly doubled its size by acquiring Irvine, California-based American Savings Bank.

19th Century Origins

The birth of the financial institution responsible for forming Washington Mutual, Inc. occurred shortly after the near-death of the city that would feed the growth of one of the United States’ largest savings and loans. In 1880, Seattle was a small town in Washington Territory just about to begin its rise toward becoming the Pacific Northwest’s most influential commercial hub. With a population of 4,000 at the beginning of the decade, Seattle was little more than a settlement situated in the upper reaches of a sprawling territory that was yet to be incorporated into the United States. Before the decade was through, however, statehood would arrive and Seattle, after nine years of growth, would transform itself into a burgeoning metropolis. The population of Seattle leaped from 4,000 in 1880 to 40,000 by 1889, the year Washington was admitted to the Union as the 42nd state and the year the city of Seattle was reduced to a pile of ashes.

On June 6, 1889, a glue pot in the basement of a downtown building boiled over and touched off the “Great Seattle Fire,” engulfing the downtown district in flames. Before the raging blaze was extinguished, 25 city blocks were razed—120 acres in total—destroying the heart of the city and erasing a decade of robust growth. Overnight, Seattle had been turned into a pile of smoking rubble. Just as the city was shedding the vestiges of its pioneer roots, it was time to rebuild, time to begin anew. It was also the time for the formation of the city’s newest financial institution, an enterprise created specifically to help in rebuilding the city of Seattle.

Statehood, the Great Seattle Fire, and the establishment of Washington Mutual, Inc.’s predecessor all occurred in 1889. In September 1889, 15 weeks after flames had turned to ashes, a group of Seattle’s business leaders convened to discuss the prospects of forming a building loan company. In attendance were shipbuilders, lawyers, doctors, bankers, and politicians, some of whom had recently arrived in Seattle whereas others had been denizens of the city for years. It was September 21, 1889, and the group of prominent citizens were intent on forming a financial institution that would answer the demand for the resources to build or rebuild houses, something commercial banks were reluctant to finance at the time. Officially established that evening was a general building loan business, a company incorporated as Washington National Building Loan and Investment Association. Washington National began its business while the city of Seattle still remained visibly scarred by the early summer fire.

Initially led by Edward Oziel Graves, who was the former assistant treasurer for the U.S. Treasury’s Bureau of Engraving and Printing, Washington National was supported by one employee during its inaugural year, Ira Hill Case, who occupied one desk in a second-floor office shared by a dozen other businessmen representing an equal number of divergent business interests. The beginnings were modest, to be sure, but not long after its creation, Washington National made banking history. The association’s first loans were approved in February 1890, one of which was an amortized home loan, perhaps the first of its kind in the United States. Washington National went on to approve more than 2,000 amortized home loans during the ensuing 20 years, becoming a much-used source for home mortgage loans.

Created as a building loan business, Washington National represented one of 3,500 building and loan associations in the United States at the time of its establishment, but when the company began to flounder after the turn of the century it chose to distance itself from the building society movement. In 1908, the enterprise changed its name to Washington Savings and Loan Association and embarked on a course that gradually steered the newly named financial institution toward the mutual banking field. Along with the name change came additional sweeping changes, as new leadership restructured Washington Savings and Loan to invigorate business. Membership fees were eliminated, the terms of interest and loan repayment schedules were precisely established, an aggressive advertising program was launched, and customers were granted the freedom to withdraw deposits at any time, with any interest accrued up to the day of withdrawal. The changes implemented spurred the institution’s growth, igniting a five-year period of unprecedented expansion. Between 1908 and 1913, the number of loans granted by Washington Savings and Loan soared from 300 to 2,700. Assets increased 11-fold, jumping from $346,576 to more than $4 million, and the number of accounts operated by the association leaped from 400 to 2,700. Helped in large part by this growth spurt, Washington Savings and Loan ranked not only as the oldest savings institution in Washington, but also as the state’s largest savings institution, providing the association with firm footing as it entered a new phase in its development.

World War I Conversion into a Mutual Bank

In 1917, while the country’s newspapers covered the progress of war overseas, Washington Savings and Loan converted into a mutual savings bank and once again changed its name. Rechristened Washington Mutual Savings Bank, the recast institution boasted more than 16,000 depositors at the time of the United States’ entrance into World War I and benefitted substantially from the century’s first epic military struggle. During World War I, Washington Mutual’s assets rose 68 percent, recording a gain of more than $4 million, and real estate loans registered an even greater increase, by 250 percent.

After the conclusion of the war, recessionary economic conditions hobbled Seattle’s economic growth, but despite the anemic financial situation Washington Mutual’s deposits increased strongly, rising from $15 million in 1921 to more than $26 million two years later. Such encouraging growth came to a stop by the end of the decade, however, as the Wall Street stock market crash of 1929 gave way to a decade-long economic depression that wrought devastation for the U.S. banking industry. Though the years were difficult, Washington Mutual persevered, avoiding the financial ruin that swept away many of the country’s financial institutions. It was during the first months of this unrivaled economic plunge that Washington Mutual completed the first acquisition in its history, acquiring Continental Mutual Savings Bank in July 1930.

By the end of the 1930s, Washington Mutual was just shy of 100,000 depositors and about to benefit once again from the economic growth engendered by the century’s second great military struggle. During World War II, Washington Mutual, by then more than a half-century old, sold nearly $30 million in war bonds. In 1941, the bank merged with Coolidge Mutual Savings Bank, increasing its resources to more than $77 million and its deposits to more than $72 million, and gaining Washington Mutual its first branch office, the quarters formerly occupied by Coolidge Mutual, which became known as the Times Square Branch. After the war, when banking legislation permitted mutual banks to establish branches in their home county, Washington Mutual opened two banking offices, one in 1947 and another in 1948.

During the 1950s, the promulgation of additional banking legislation paved the way for mutual banks to establish statewide networks of service, but despite the opportunity to do so Washington Mutual did not move outside the greater Seattle area until 1964. Branches were established in the Seattle area during the intervening years, however, with five Washington Mutual offices opening their doors between 1955 and 1961. When Washington Mutual finally did move outside the Seattle area, the stage was set for an era of geographic expansion that extended the bank’s presence throughout Washington. From 1964 forward, the physical growth of Washington Mutual was driven by internal expansion and by external means, as the bank took on the role of an aggressive acquisitor. This chapter in the bank’s history began with the acquisition of Citizens Mutual Savings Bank in 1964.

Company Perspectives:

Washington Mutual’s mission is to be the premier diversified financial services organization in the western states.

Statewide Expansion Begins in 1964

Citizens Mutual Savings Bank’s existence as a mutual bank was only hours old when Washington Mutual sealed the deal to purchase the eastern Washington-based financial institution. Founded in 1902 as Citizens Savings and Loan Society, the thrift operated as a savings and loan up until its acquisition by Washington Mutual, acquiring the Pullman Savings and Loan Association the year prior to the 1964 Washington Mutual acquisition. With its base in Spokane and the newly acquired Pullman Savings and Loan adding a presence in Pullman, Citizens Savings and Loan represented an opportunity for Washington Mutual to expand into eastern Washington, but banking legislation at the time did not permit a mutual bank to merge with a savings and loan. To clear this obstacle, Citizens Savings and Loan converted into a mutual bank in 1964, as Washington Mutual had done 47 years earlier, changing its name to Citizens Mutual Savings Bank just prior to its merger with Washington Mutual. Once completed, the transaction extended Washington Mutual’s presence beyond the greater Seattle area for the first time, giving the bank branches in Pullman and Spokane and establishing a pattern the Seattle-based concern would follow in the years ahead.

The year after the Citizens Mutual Savings Bank acquisition, Washington Mutual completed a similar deal when Liberty Savings and Loan Association converted into a mutual bank to facilitate its acquisition by Washington Mutual. Established in 1919, Liberty Savings and Loan Association became Liberty Mutual Savings Bank in 1965, giving Washington Mutual branch offices in Yakima, Kennewick, and Grandview, Washington. The same scenario was played out in 1973 when the Grays Harbor Savings and Loan Association converted into Grays Harbor Mutual Savings Bank just before its acquisition by Washington Mutual, adding a branch office in Grays Harbor to the Seattle-based bank’s growing empire.

Against the backdrop of these acquisitions, Washington Mutual expanded geographically through internal means by establishing branch offices on its own. Between 1965 and 1973, the bank opened 15 branch offices in the Seattle area and in regions across the state, building itself into a dominant force in Washington State. Swelled by acquisitions and internal expansion, Washington Mutual entered the 1980s as a venerable yet rising financial institution, its near-century of business in the Seattle area and two decades of statewide expansion generating considerable momentum for the decade ahead. During the 1980s, this momentum would not be checked, as the bank diversified quickly, entering new sectors of the financial industry at a yearly pace. Though industry observers would charge that the bank spread itself in too many directions during the decade, the far-flung expansion effected during the 1980s proved to be the catalyst for Washington Mutual’s animated growth during the 1990s.

1982 Arrival of Killinger

During the 1980s, the subsidiary companies that would compose The Washington Mutual Financial Group came into bloom. The proliferation of diversified financial subsidiaries grouped under the Washington Mutual corporate umbrella began in 1982 when the bank acquired Murphey Favre, Inc., Composite Research & Management Co., and formed Washington Mutual Insurance Services. Murphey Favre was the Northwest’s oldest securities brokerage firm, Composite Research & Management Co. operated as an investment advisor and portfolio management firm, and Washington Mutual Insurance Services was a full-service retail insurance agency. Beginning with these three subsidiaries, Washington Mutual formed or acquired a host of other operating companies that carried the bank into a variety of new business areas, including travel services, real estate partnerships, junk bonds, and commercial construction loans.

None of the subsidiary companies either acquired or formed during the 1980s was more important to the future of Washington Mutual than the 1982 acquisition of Murphey Favre, a distinction entirely due to the arrival of a young Murphey Favre executive named Kerry K. Killinger. At the time of the 1982 acquisition, Killinger was 32 years old and had served as a securities analyst and investment broker for the company before being named executive vice-president. Once brought into the Washington Mutual fold, Killinger rose quickly through the bank’s executive ranks, becoming president in 1988 and chief executive officer two years later. During Killinger’s rise, Washington Mutual was moving in a different direction, as the bank began to decline and suffer from waning profitability. With earnings slipping late in the decade, a new program aimed at restoring profitability and invigorating growth was launched, one that would dramatically amplify the magnitude of Washington Mutual’s geographic scope.

1990s: Unprecedented Growth

During Washington Mutual’s 100th anniversary year, the new strategy was adopted, a program of growth spearheaded by Killinger, who informed the Puget Sound Business Journal that in the coming years it was Washington Mutual’s goal “to be the premier consumer bank in the Northwest.” Toward this objective, Killinger turned to a “back-to-basics” approach by focusing on consumer loans and checking accounts. Once Killinger was named chairman of Washington Mutual in 1990, the bank’s bid to become the dominant financial institution in the region began in earnest, as the newly named chairman, president, and chief executive officer orchestrated an acquisition campaign that swallowed up competitors at a rate of about two per year. For the first time in the bank’s history, it extended its presence beyond Washington’s borders, compensating for its belated entry into the regional banking arena by expanding aggressively at a time when the savings and loan industry in general was faring poorly.

In 1991, Washington Mutual ranked as Washington’s largest independently owned financial institution, with $8 billion in assets and 84 financial centers and 17 home loan centers in its home state, Oregon, and Idaho. These impressive figures would soon be dwarfed by the magnitude of the bank four years later, as Washington Mutual’s acquisition spree ignited its growth, carried the bank into Montana and Utah, and necessitated the formation of Washington Mutual, Inc. as a holding company in August 1994. Between 1991 and 1995, Washington Mutual’s profits more than doubled, leaping from $80.6 million to $190.6 million, its deposits increased from $5.4 billion to $10.6 billion, and its assets swelled from $8 billion to $21.6 billion. Meanwhile, the number of branch offices operated by the bank had increased dramatically, reaching a total of 248 financial centers and 23 loan centers by the end of 1995. The first half of the 1990s represented a period of growth unrivaled in Washington Mutual’s history. As the bank entered the late 1990s it did not slow its pace of growth, rather, its pace increased.

In early 1996, Washington Mutual acquired Coos Bay, Oregon-based Western Bank, giving it 42 branch offices in 35 communities and $787 million in assets. Next, the bank acquired Ogden-based Utah Federal Savings Bank, adding another $123 million in assets to its growing coffers. The bank appeared to be continuing its aggressive campaign to dominate the Pacific Northwest, an objective Killinger touched on when he said, “Our strategy calls for continued growth through selective acquisitions of consumer banks, commercial banks, and other financial service businesses that offer long-term value to our shareholders.” Killinger put his words into action in July 1996 when Washington Mutual completed the largest acquisition in its 107-year history. After searching for an entry into the lucrative California market for two years, Killinger found his target in Irvine, where the 158-branch American Savings Bank was headquartered. In a $1.4 billion deal completed at the end of July, Washington Mutual acquired American Savings Bank and nearly doubled its size, making it the third largest savings and loan in the United States. Buoyed enormously by the acquisition of American Savings Bank, Washington Mutual entered the late 1990s intent on continuing its ambitious expansion program. Further acquisitions in the California market were expected, as the venerable financial institution with its $42 billion in assets charted its course for its third century of business.