Stock Watch
Washington Mutual: The Wal-Mart of Banking
This leading savings and loan sells products for less and still turns big profits.
August 25, 2003
As CEO Kerry Killinger sees it, Washington Mutual (WM) doesn't have much to learn from other thrifts and banks. The businesses he admires are Starbucks, Target and Wal-Mart. "What we're trying to do is create America's leading retailer of financial services," he says.
The Seattle-based company is headed in the right direction. With $277 billion in assets, it's already the nation's largest savings and loan. Its huge size, along with its adept use of the latest technology, allows Washington Mutual to sell products for less and still turn big profits.
Wall Street has historically considered s&l's lousy businesses bound to the interest-rate cycle. But Bill Nygren, the bargain-hunting manager of Oakmark and Oakmark Select funds, is making a huge wager that Wall Street is wrong. He recently had a whopping 18% of Oakmark Select's assets in Washington Mutual stock (and 4% of Oakmark fund's). When Nygren speaks, it's hard not to pay attention. Oakmark Select has outpaced its peers every year since it was launched in late 1996.
Nowadays, says Nygren, Washington Mutual is virtually immune to the effects of interest-rate swings, and he predicts that profits will rise at least 10% a year indefinitely. "Who can process mortgages as efficiently as they can?" he asks rhetorically. "Who can maintain a checking account as efficiently?" The stock is a bargain, selling at eight times 2004 earnings estimates of $4.81 -- a ratio that Sanford Bernstein analyst Kevin St. Pierre calls "insultingly low."
--Steven T. Goldberg