Magazine article American Banker

Wamu and Golden West Are Marginal Exceptions

Magazine article American Banker

Wamu and Golden West Are Marginal Exceptions

Article excerpt

During a quarter in which margins narrowed across the industry, two West Coast thrift companies stood out for doing what seems be the near-impossible -- margin expansion. Washington Mutual Inc. said its margin increased 7 basis points, to 3.32%, from the fourth quarter, and Golden West Financial Corp. said its margin gained 4 basis points, to 3.14%.

Few other large thrifts could say this.

With interest rates at all-time lows, lenders have been puzzling over how to shave the rate they pay for deposits deeper and faster than the decline in rates on their earning assets. Several bankers complain that they have hit an interest rate floor on retail deposits, including interest checking accounts, at the same time that the mortgage refinance boom has bloated their books with lower-yielding assets.

Margins at the 10 biggest U.S. banks narrowed by an average of 8.6 basis points in the first quarter, according to a review of earnings reports. Among them, only J.P. Morgan Chase & Co. reported margin expansion.

The thrift leaders did not fare much better. Earnings results are in for all but one of the top 10, and their margins fell an average of 7.6 basis points. Philadelphia's Sovereign Bancorp was the only one that reported an increase, of 1 basis point.

What gives? Basically, Washington Mutual and Golden West paid less to depositors and the government agencies that lent them money.

Wamu, which is trying to make itself a coast-to-coast financial services firm focused on the middle market, has been coaxing customers in with a high-interest-rate account, Platinum Checking. Twice in the first quarter the $277 billion-asset Seattle company it slashed the rate it pays on that account, with the result that the average rate it paid on all of its interest checking accounts went from 2.35% to 1.92%.

Also lifting its margin were high volumes of new deposits in no- or low-interest accounts that hold "payoff" funds borrowers submit to banks when they refinance loans, Wamu said. …

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