Wamu Rivals See Deposit Upside, and a Tougher Foe

Well before federal regulators shut down Washington Mutual Bank on Thursday, deposits began surging at the $1.4 billion-asset Oritani Financial Corp. in Washington Township, N.J.

"We've seen a huge amount of inflow in the last few months, quite a bit of it from Wamu," said Kevin J. Lynch, Oritani's chairman, president, and chief executive officer. "I'm sorry to see Wamu go, and their shareholders and debtholders get hurt. But it's a great opportunity for a community bank like us."

Several bankers said they expect the customer exodus to slow now that JPMorgan Chase & Co. has acquired Wamu's banking operation. JPMorgan Chase instantly became the No. 2 retail banking company in the country, with a coast-to-coast branch network and a product mix few community banks can match.

Still, most large mergers lead to a fair amount of market disruption and community bankers who competed against the $307 billion-asset Wamu hope to pick up both former customers and employees. Wamu also had a reputation for paying aggressive rates on deposits and competitors are counting on its demise to bring more stability to deposit pricing.

When it seized Wamu late Thursday, the Office of Thrift Supervision said it had lost $16.7 billion of deposits since Sept. 15, and it was competitors such as Oritani that benefited most.

Mr. Lynch said Oritani's deposits had been flat at $700 million for several years but have jumped to $739 million since the end of the second quarter.

"We haven't been the greatest ratepayers," he said. "But I think people are coming to us now for security."

Oritani, which sold a minority stake to the public in January of last year, has a Tier 1 capital ratio of 19.95% — more than three times the level that regulators require.

Ken Martin, the president and CEO at the $941 million-asset Cashmere Valley Bank in Washington, said that since JPMorgan Chase would be new to his area, he expects it to lose customers to his 76-year-old bank.

"Disruption creates opportunity, and I think this opportunity will continue," Mr. Martin said. "We are boringly stable, and I think customers are looking to be bored by their financial institution."

Ron Farnsworth, the chief financial officer at the $9 billion-asset Umpqua Holdings Corp. in Portland, Ore., agreed that in Wamu's home base in the Pacific Northwest, some people will prefer to stick with a local bank.

"If you're a customer in the Northwest, and you have been banking with Washington Mutual your whole life, you might not want to do business with a New York bank," he said. "There's been a lot of turmoil in this market over the last month, and I expect some of it will continue."

Bradley Rock, the president and CEO of the $1.5 billion-asset Smithtown Bancorp in New York, said Wamu's demise is likely to ratchet up people's concerns about the health of the financial services industry, even though the vast majority of banks and thrifts are healthy.

"Unfortunately, when you get news of the largest thrift failure in the nation's history, it tends to undermine consumer confidence in a general way," he said. "So in that respect, it's bad for all of us. I think it's bad for community banks, and I think it's bad for the nation as a whole."

But several others said they expect the acquisition to have a calming effect, because JPMorgan Chase is one of the nation's strongest banks.

Bankers said that, unlike Wamu, JPMorgan Chase does not overpay for deposits.

Ronald E. Hermance Jr., the chairman, president, and CEO at the $49 billion-asset Hudson City Bancorp in Paramus, N.J., said the "desperation rates" Wamu had been paying on its certificates of deposit and money market accounts had been putting pressure on competitors.

"We'll probably see those rates reduced over time, and that'll help everybody," he said.

Gerald H. Lipkin, the chairman, president, and CEO of the $13 billion-asset Valley National Bancorp in Wayne, N.J., agreed with that assessment.

"I think it'll bring stability back into the marketplace," he said. "I think pricing on deposits will return to more sensible, more realistic levels. Everyone knew Wamu was in deep trouble, and they were paying ridiculous rates for deposits. People feeling that it was FDIC-insured were jumping for those rates, making it more difficult for community banks to raise deposits."

But the three-year-old Green Bank in Houston said it hopes to replace Wamu in its market as the bank known for paying the highest deposits.

To keep pace with its asset growth, the $300 million-asset Green Bank has been offering above-market rates on deposits, said John Durie, the executive vice president and CFO.

Should JPMorgan Chase reduce the rates that Wamu offered, rate-seeking customers might think of Green Bank as an alternative, he said.

Echoing several bankers, Mr. Lipkin said he does not fear a larger JPMorgan Chase, because it cannot offer the same level of service as a small bank.

"A community bank focuses heavily on a very high level of service, from the CEO to the client," he said. "It's physically impossible for [JPMorgan Chase CEO] Jamie Dimon to give one-on-one service to the smaller clients, just impossible."

Mr. Hermance said that even if competitors do not get much deposit runoff from the acquisition, they could benefit in other ways. For example, JPMorgan Chase might end up selling overlapping branch locations to recover some of what it spent, he said, and Hudson City would be interested in buying them.

"Some of our most successful branches today are ones that other … [banks] have walked away from," he said.

Several bankers said the acquisition could also present an opportunity to pick up employees.

"I think there is a real opportunity to gain talent right now," said John E. Heath, the president and chief operating officer of the $3.9 billion-asset Washington Trust Bank in Spokane. Wamu "may have failed as an institution, but it had a staff of well-trained and well-versed employees that are strong competitors."

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