Now that he has built the nation's largest thrift company, Kerry Killinger, chairman of Washington Mutual Inc., says he is going to take a break from acquisitions.
"Our focus now is on internal growth and making sure all the cost savings will be achieved, which we are very confident will happen. Everything is moving on target," he said during an interview Wednesday.
Internal growth has never been Mr. Killinger's calling card. His reputation was built through a series of big acquisitions that resulted in an eightfold increase in asset size over two years, bringing Washington Mutual's heft to $158 billion. In the process, it was transformed from a regional thrift to a major financial services provider on the West Coast.
But right now, Mr. Killinger has little choice but to slow down his buying spree. The thrift company's stock is trading at only 12 times next year's estimated earnings, reflecting investors' worries that Mr. Killinger may not be able to make his ambitions pay off for shareholders.
These concerns, and the fact that Washington Mutual's stock was being listed on the New York Stock Exchange, brought Mr. Killinger to New York Wednesday.
He arrived as analysts were cutting the company's earnings estimates. Fourth-quarter results are expected to include hundreds of millions in charges incurred from Mr. Killinger's latest deal, the acquisition of H.F. Ahmanson & Co., which closed Oct. 1.
But Mr. Killinger insisted that the Ahmanson integration is going well and that Washington Mutual is thriving at a time when a waning global economy is hurting the earnings of many commercial banks.
As for internal growth, he said he intends to expand Washington Mutual's consumer finance, mortgage banking, and portfolio lending and even expand into business lending, the domain of BankAmerica Corp., Wells Fargo & Co., and other commercial banks. Expanding existing businesses in Florida and Texas may not be far off either, he said.
But until investors see that Mr. Killinger can deliver the 18% returns on equity they've grown accustomed to, they will not award his stock the higher multiple that would enable him to do another deal.
"Momentum-they have got to demonstrate earnings momentum," said Michael E. Martin, head of the financial institutions group at Credit Suisse First Boston.
Mr. Killinger's task to is to build up revenues quickly, a challenge, considering that most thrifts are currently having a hard time generating loans.
Though its size enables Washington Mutual to seek loans in a wide territory, its chief difficulty is that it is the nation's largest originator of adjustable-rate mortgages, according to Keefe, Bruyette & Woods Inc. With interest rates at historical lows, consumers prefer fixed- rate mortgages.
"Asset mix and rate-risk issues represent the proverbial $64,000 question," said Keefe Bruyette analyst Thomas F. Theurkauf in a recent report. He rates the stock a "market performer."
In response, Mr. Killinger said his company would seek to originate more loans, at either fixed or adjustable rates, by opening new home loan centers in the coming year and offering direct home loan origination at his company's California branches.
He also predicted that a gradual steepening of the yield curve would make adjustable-rate mortgages more popular in the year ahead.
Washington Mutual would also like to increase its mortgage banking business to better compete against Wells and Countrywide Credit Industries, he added. Such growth, he said, would come down the road via internal initiatives-or perhaps an acquisition.