Weeding out Systems

Before Washington Mutual will consider seriously any potential acquisition target, a due-diligence team examines its information systems. It looks for anything too old or proprietary that would hamper a quick data conversion to Washington Mutual's infrastructure. The bank runs IBM's OS/2 and some Microsoft Windows operating systems, Token Ring networks, various mainframe systems and a green-screen report distribution system from Computer Associates.

The technology isn't state of the art, but it works and it lets the bank assimilate companies quickly and smoothly, says Guillermo Kopp, an analyst at banking consultancy TowerGroup in Needham, Mass. "You make some sacrifices," he says. The most serious is that Washington Mutual sometimes throws away more sophisticated technology that's already running at the companies it buys.

"I remember my staff was taking the [Washington Mutual] technical folks on a tour of our data center," Sadin says. "They pointed at this and that and said, 'Oh yeah, we'd been thinking about doing this.' My staff was gloating."

Bank United had spent several years setting itself up to be bought, a makeover that included some deft technology: storage area networks, Windows NT servers, Ethernet networks, and a Web site honed for Internet banking. "It looked like it was a better infrastructure at our bank," Sadin says. "But that's not how you measure a bank's success."

No, it isn't. Assets managed profitably is how it's measured. And technology can be a critical factor, even if it's not leading edge. "The absolute best practice in a merger is to use the technology you have," Kopp says. "That gives you the benefit of immediate savings."

Gross, the Washington Mutual CIO, agrees. He doesn't want to shut his eyes to an acquiree's best ideas. But the reality is, Washington Mutual adopts little but the data. "Ultimately, it's a training exercise for the employees of the acquired company," he says. "Our view is there's no successful merger of equals."

That's what soured Phil Boyer on working for Washington Mutual after Bank United was absorbed. Boyer was a senior vice president who oversaw Bank United's electronic commerce and other Web projects. Washington Mutual asked if he'd like a similar position there. "As an advanced technologist, it's not very attractive considering going to a company where the technology is extremely old," he says. "Had I even thought I could make a difference in an institution of that size, I would have gone with it," he says. "But they were going to rule."

In March, Washington Mutual completed acquisition No. 32—certain assets of HomeSide Lending in Jacksonville, Fla.—and the company isn't actively pursuing any other deals. The plan now is to taper off doing takeovers, instead growing from within and increasing efficiency. The banking industry as a whole has slowed merger activity during the two years of a down economy. There is less money to earmark for such deals, and there are fewer choice targets.