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WaMu: The bad boy of banking
Breaking the rules -- no ATM fees, free checking, etc. -- is paying off for Washington Mutual.
September 3, 2003: 6:05 PM EDT
By Adam Lashinsky, CNN/Money Contributing Columnist

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MENLO PARK, Calif. (CNN/Money) - You've got to hand it to Washington Mutual, which understands two things about the banking business: The profits are big enough to make money without gouging customers, and creative marketing goes a long way in an industry where consumers are used to being treated badly.

WaMu, as the Seattle-based thrift is known, is fast becoming the enfant terrible of the banking industry.

A regional player for most of its 100-year-plus history, WaMu more recently is giving a scare to banks around the country, particularly in California, New York and Illinois, its biggest areas of expansion.

On Wednesday, the clever WaMu staged a publicity stunt certain to put even more heat on the big boys. It announced that it won't charge non-customers in New York, New Jersey and Chicago the $1.50 other banks charge to use their ATM machines.

Just to rub it in, WaMu distributed purses with a buck fifty in them to passersby.

It might not seem to make a lot of sense to allow non-customers to use their ATMs for nothing. But WaMu knows just how much consumers resent the annoying charges. It won't take many customers changing their accounts to justify the relatively small expense of letting a few free-loaders get cash from the WaMu network.

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(I always thought the consumer complaint that there was something "unfair" about having to pay for an ATM belonging to another bank was ludicrous; if you want to use the machines, open an account and pay for the privilege. WaMu cleverly has figured out a way to capitalize on the consumer angst, misguided though it may be.)

Free ATMs are just one in WaMu's stable of gimmicks. Free checking is another. The giveaways clearly aren't hurting profits.

Last year the company earned $3.8 billion in profits on $19 billion in revenue. Wall Street is looking for profits of about $4.1 billion this year. (For a terrific primer on WaMu, read a piece in Fortune from earlier this year.)

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And yet, WaMu's stock, which has been treading water of late, trades for a relatively modest nine times expected earnings. It's a victim in part of rising interest rates as investors assume its healthy mortgage financing and re-financing business will dry up.

Retail banking became rather untrendy in the mid-1990s as giant banks chased brokerage and other profits. Humbler players like WaMu understood there's plenty to be made by providing cheerful banking services to the little people. And you don't even need to take a buck fifty from their friends to do it.

The pot calling the kettle a conglomerate

One had to chuckle at least a little when Edgar Bronfman Jr. told the Wall Street Journal that Vivendi Universal's (V: Research, Estimates) decision to sell itself to General Electric (GE: Research, Estimates), won't benefit Vivendi shareholders because "Vivendi will continue to be an unwieldy conglomerate with interests in businesses that have little, if anything, to do with each other."

This from the man whose art-collecting family, long in the beverage industry, made a true killing by investing in DuPont, a chemical company, and then investing the winnings in the movie business. I'm sure to Bronfman the connections there are crystal clear.

Remember SARS?

Has anyone else noticed something a little strange about all the coverage of China's refusal to allow its currency, the yuan, to float freely? You don't see any commentary about the effect SARS had on the booming Chinese economy.

It's hard to believe, but only four months ago economists widely expected China's GDP growth for 2003 to decline an entire percentage point, from an expected 8 percent to 7 percent because of the SARS epidemic. Now? The growth projections are back to 8 percent and SARS, as an economic issue, simply isn't discussed.

Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at

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