SEATTLE - When Kerry K. Killinger needed a code name for the deal that would catapult his thrift into the big leagues, he picked "The Babe."

The boyish-looking chairman and chief executive of Washington Mutual Savings Bank said he was inspired by slugger Babe Ruth because the $663 million cash purchase of crosstown rival Pacific First Bank earlier this year "could potentially be a home run."

The final inning hasn't been played, but analysts agree that Mr. Killinger, 44, will score big if the takeover is skillfully executed.

"It's a blockbuster deal," said Steven R. Schroll, an analyst at Piper, Jaffray & Hopwood Inc., a Minneapolis brokerage firm. "It turned Washington Mutual into the preeminent independent financial institution in the Pacific Northwest."

After all, in buying Pacific First from Canada's ailing Royal Trustco Ltd., Mr. Killinger acquired a thrift about two-thirds the size of Washington Mutual, with 128 branches in two states. He paid about 133% of Pacific First's tangible book value, a moderate price in today's market.

A Longer Reach

The transaction expanded Wamu, as the Seattle-based thrift is known, to $15.1 billion of assets and greatly extended its reach in Oregon, where it had been little more, than player.

Already Washington State's largest thrift, Wamu will have 250 full-service branches and home loan offices after closing redundant facilities. Its two-state network now extends from the California state line to the Canadian border.

Investors thus far have enthusiastic about the merger. Wamu's stock price soared 13.5%, to 29.38 per share on Oct. 27, when the Pacific First purchase was announced, and has held its ground since.

The thrift's shares closed at $31.75 on Thursday, up $1.375.

Obstacle Course

However, there are major hurdles to leap before the merger can be declared a success.

Since Mr. Killinger became chief executive of Washington Mutual three years ago, he has overseen 10 acquisitions. But the Pacific First purchase "is a significantly larger deal than they have ever done before," warned R. Jay Tejera, a Seattle-based analyst with Dain Bosworth Inc.

One of the potential pitfalls faced by Mr. Killinger is merger mechanics, especially consolidation of the two thrifts' data systems.

"Pacific First was an organization that had several changes in leadership and a lack of consistency," the Iowa-born executive said in a recent interview. "Their data processing had been done in-house, then outsourced, then brought back inside. That makes it more difficult to have a tightly honed operational system."

Mishandling of the consolidation process - especially the combination of computer systems - would be a major setback.

"There is operational risk," Mr. Killinger conceded.

|Confident but Cautious'

As a result, Wamu is taking great pains with the systems consolidation. Instead of converting Pacific First immediately after the deal closed on April 9, Wamu has operated parallel systems while planning the consolidation branch by branch.

Computer conversion will take place on July 26 for Washington branches and on Sept. 1 for those in Oregon.

"We're confident but cautious" about the process, said executive vice president Liane Wilson, who is supervising the consolidation.

Another crucial element in the merger is hitting the cost-savings goals that Washington Mutual has projected. It has said that it expects to cut $45 million to $60 million of annual expenses.

Wamu is moving quickly to meet the goal. It recently said it will close 15% of the combined thrifts' retail offices and eliminate about 200 jobs on top of the 400 axed at Pacific First before the merger.

Wamu also has managed to get out of the expensive lease Pacific First siped for its trophy-building headquarters in Seattle. Mr. Killinger persuaded Oregon-based U.S. Bancorp to take over the space.

No Credit Problem

Credit has not been an important issue in the merger. To insulate itself from Pacific First's substantial loan problems, Wamu negotiated solid asset-quality protections.

On the marketing and funding fronts, Wamu says so far it has retained 96% of the deposits inherited from Pacific First. But officials admit that the big test won't come until computers are converted.

Meanwhile, Wamu is telling investors that its strong recent performance will continue even as the merger moves ahead. The thrift earned $95.4 million in 1992 and $38.7 million in this year's first quarter. Returns on assets were 1. 19% and 1. 54% respectively.

Mr. Killinger said Wamu will continue to record ROAs "well above" 1%. He added that he is comfortable with the middle to upper range of analysts' earnings estimates for the thrift. That would put Wamu on track to net between $39.5 million to $44 million for the current quarter and $162 million to $174 million for all of 1993.

Indeed, steady progress at Wamu has won Mr. Killinger a growing crowd of admirers.

A |Straight Arrow'

Soft-spoken and quick with numbers, Wamu's chief has none of the swagger of a financial tycoon. Instead, he seems more the whiz kid who might have had a slide rule sticking out of his pocket when he studied at the University of Iowa.

"He's a real Midwest boy: extremely orderly, works hard - a total straight arrow," said Peter H. Peracca, an investment banker at Salomon Brothers Inc.

Before becoming a banker, Mr. Killinger spent 13 years working as a securities analyst and money manager. He joined Wamu in 1982, when it bought the Spokane brokerage firm Murphey Favre, where he was an executive vice president.

Mr. Killinger rose rapidly at the thrift through a series of financial management jobs, and was tapped as president in 1988. Two years later, he succeeded Louis H. Pepper as Wamu's chief executive. In 1991, he added the chairman's title.

Though he inherited an excellent retail network, the thrift was plagued with credit problems and humdrum performance.

Tight Focus

Like other successful thrift turnaround artists, Mr. Killinger returned the company to its roots. He put a strict limit on new commercial real estate lending, and focused on reinforcing Wamu's position as Washington State's No. 1 mortgage lender while building related consumer financial service businesses.

Mr. Killinger said his management philosophy reflects lessons learned as a securities analyst.

"Top-performing companies are always very focused," he said. "They try to do relatively few things, but do them well."

His formula for business success also matches his own unpretentious style. Successful businesses, he said, "put their money into growing the company rather than luxury trappings."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.