7 Lessons From WaMu’s Playbook

Mergers and acquisitions are, once again, shaking up all kinds of industries. The big question: How do you do them right? Here’s the playbook according to Washington Mutual, one of the best in the business.


Dyan Beito’s career has soared since she joined Washington Mutual Inc. in a merger four years ago. She has been given big promotions, rising to become executive vice president for deposit services at the Seattle company. But some of her most vital work comes when she steps away from her regular duties and flies to a new city to brief managers at another financial institution that is about to be acquired by Washington Mutual.


“I know exactly what you’re feeling,” she tells hundreds of nervous managers. “Four years ago, I sat in your seat. But let me tell you a little bit about how we do mergers here.” An hour later, after she lays out Washington Mutual’s approach, the tension is gone. Managers at acquired banks suddenly see a brighter future. As one of them told her, “This sounds like the company that I’ve always wanted to work for, but never knew existed.”

So what is Washington Mutual doing right? Talk to executives at the company, and what emerges is a wealth of homegrown wisdom about how to carry out corporate takeovers. Washington Mutual has operated away from the spotlight — there’s no Donald Trump figure in Seattle hawking his version of The Art of the Deal. But Kerry Killinger, Washington Mutual’s president, chairman, and CEO, along with Craig Tall, his top takeover specialist, have quietly purchased nearly 30 thrift institutions, mortgage companies, and other financial firms in the past 15 years. Like many banks, Washington Mutual has had to increase loan-loss reserves somewhat to adjust to the current weak economy. But since 1986, it hasn’t had a single deal go sour.

All told, Killinger, Tall, and company have built Washington Mutual into one of the nation’s top consumer banks, with more than $200 billion in assets. What was once a puny Seattle thrift is now the biggest mortgage lender in the United States, surpassing Bank of America and Citigroup. Washington Mutual also has more than 4 million checking-account holders, chiefly in the West, but with expansion drives afoot in Texas and New York. And Washington Mutual’s stock price has climbed nearly tenfold in the past decade.

That success is even more striking because many banks and brokers have a terrible time making acquisitions work. Projected efficiencies fall through. Key executives quit after the deal is done. Computer systems never learn to talk to one another. And before long, what was heralded as a brilliant combination turns into a costly write-down.

So in this post-IPO era of roll ups, buy ups, consolidations, and acquisitions, how do you do one right? Here are seven key rules from Washington Mutual’s mergers-and-acquisitions playbook.

1. Pick targets that will make you a market leader. In 1996, Washington Mutual made its first foray into California, buying Keystone Holdings Inc. Since then, Washington Mutual has made five more California purchases, snapping up nearly 1,700 branches by acquiring the likes of Great Western Financial and Home Savings of America, a subsidiary of H.F. Ahmanson.


In the home-mortgage market, Washington Mutual has been relentless. It built up a strong position from its California acquisitions and then, in the past two years, redoubled its bet by acquiring the mortgage units of PNC Financial Services Group Inc. and FleetBoston Financial Corp. Each deal has given the company greater market clout and greater efficiencies. “There is a network effect in banking,” explains Jerry Gross, Washington Mutual’s chief information officer. “The more nodes you put in, the less effort it takes.”

In general, “acquisitions need to be a by-product of your basic strategy,” says Killinger. “We would never want to do scattershot acquisitions and then have to think up strategies to justify them. We believe that the best way to build value is to focus on a few markets where we can achieve national leadership.”

2. Work with sellers whose values match yours. “A week doesn’t go by where we don’t talk to someone about a possible deal,” says Tall, Washington Mutual’s vice chair of corporate development and specialty finance. “In a typical year, we may complete two or three transactions.” Deals make the cut if they improve per-share earnings, fit into growth strategies, and bring minimal risks.

As Tall and his team gauge risks, they pay attention to sellers’ priorities. “Most sellers want this transaction to be a way to extend their business further than they can take it on their own,” Tall says.

3. Make blunt decisions about who will run the show. Many jumbo deals these days are billed as “mergers of equals,” with top-management duties split across a delicately assembled coalition of executives from both companies. That sounds soothing — but it’s not the Washington Mutual approach. “I’ve never heard of a merger of equals that really worked,” Tall says. “It just means that tough decisions don’t get made.”

Washington Mutual’s deals are outright takeovers, with Killinger keeping the CEO job and the top four or five spots going to longtime members of his team. But the company does go out of its way to create great career opportunities for the less senior executives of acquired companies. “If you look at our top 100 managers,” Tall says, “easily 60 of them came to us through acquisitions. We want each acquisition to strengthen our overall management team.”


4. Get everyone involved in fitting all of the pieces together. When Washington Mutual seriously pursues an acquisition, its formal deal team consists of three people: Tall and two assistants. They’re also joined by as many as 100 regular bankers who have day jobs, but who clear out their evening and weekend schedules to help.

That help from the front lines is invaluable in making sure that Washington Mutual buys the right targets for the right reasons — and pays an intelligent price. “Take something like risk assessments,” Tall explains. “One of the bank’s senior risk managers, Norm Swick, is fantastically quick and good. We use him every time we can.”

What’s more, frontline managers who get involved in acquisition screening become much more committed to making the deal work. In other corporate cultures, where a big-deal team does all of the work, there’s a much greater risk that the eventual handoff of the acquired business to an operating team will go badly.

5. Close your deals quickly. In banking, acquisitions take time.They need extensive regulatory review and can’t proceed until state and federal authorities are satisfied with the terms of the deal. “That can be a huge disadvantage if you’re in limbo for a year,” Tall says. “You have committed to paying for something, but you don’t have effective control.”

Washington Mutual also draws on its hard-won knowledge all of the quirks and wiggles that are necessary to get its deals approved. “We know what the regulators are going to ask for,” Tall says. “So we might as well give it to them right away.”

6. Go all out to win your new employees’ trust. In many takeovers, acquirers woo the top few executives at a target company but don’t bother getting to know the managers and employees further down the organization. That’s not the way Washington Mutual plays the game. After an acquisition spree between 1997 and 1999 quadrupled Washington Mutual’s workforce, Killinger vowed to meet 10,000 of his employees during the next 12 months. When the counting period ended, he had pushed that total to more than 11,000.


“We’re not talking about conference calls,” Killinger says. “These are branch visits, off-site meetings, and company events. At each one, we’ll tell our people as much as we tell our board of directors about the strategies that we have in place.”

7. Don’t ever stop growing internally. “A lot of companies come to a standstill when they’re in the midst of an acquisition,” Killinger says. “You have to keep most people engaged with their day-to-day responsibilities.” That’s essential for two reasons, he explains. First, it ensures that the company doesn’t become so dependent on acquisitions that its core business might stagnate. Second, it helps investors feel good about the underlying business, bidding up Washington Mutual’s stock to the point that the company can acquire other banks in stock swaps that actually help per-share earnings.

Right now, for example, Washington Mutual has put some of its rising stars to work on next-generation Web sites, clever advertising campaigns that promote free checking, and audacious new bank-branch designs that create the relaxed tone of a nice hotel or department store — internal initiatives to boost growth.

“In the next 5 to 10 years, we want to create one of the great companies in our categories,” Killinger says. “We’re largely going to measure our progress by earnings-per-share growth. And we’ll do it with a combination of internal growth and acquisitions.”

Senior editor George Anders ( is based in Silicon Valley.