Washington Mutual to Up Ante With Pledge

In what would be the largest inner-city loan program ever proposed by a U.S. banking institution, Washington Mutual is expected today to announce a commitment to lend $75 billion to mostly lower-income and minority borrowers over 10 years, if it successfully merges with Great Western Financial.

Washington Mutual, engaged in a duel with Home Savings of America to acquire Great Western, said the majority of those mortgage, consumer and small-business loans would probably be made in California. Its proposal eclipses a $70-billion community reinvestment commitment made three weeks ago by Home Savings.

But the Greenlining Institute, the California Reinvestment Committee and other community-based organizations said they could not endorse Washington Mutual’s proposal in its current form, which they said lacks the specificity of Home Savings’ commitment.

“We commend the [$75-billion] number itself, but we have to evaluate it with care and criticism,” said Bob Gnaizda, general counsel at the Greenlining Institute, which praised Home Savings’ commitment.

Kerry Killinger, Washington Mutual’s chairman and chief executive, declined to make any comparisons with Home Savings’ pledge. “Our program was built on what we are comfortable with and what we can deliver,” he said in an interview Wednesday.

Washington Mutual, which has a friendly merger agreement with Great Western, has been expected to counter Home Savings’ pledge because it doesn’t want to risk losing ground on social issues that could affect the pitched battle to be the nation’s dominant thrift. Home Savings is the country’s biggest thrift, followed closely by Washington Mutual and Great Western.

“It’s another way that prevents [Home Savings] from getting the upper hand, even if it is with the community,” said Joe Morford, a financial services analyst with Alex. Brown & Sons in San Francisco. Although Washington Mutual’s commitment is huge, Morford said, he thought it was doable, given Washington Mutual’s track record.

Meanwhile, H.F. Ahmanson & Co., the Irwindale-based parent of Home Savings, said Wednesday that it has received enough support from Great Western shareholders to force Great Western to hold its annual meeting by May 6.

Great Western’s board had indefinitely postponed that meeting, originally scheduled for April 22, as part of its effort to fend off Ahmanson’s offer, valued at $6.3 billion as of Wednesday’s market close. Washington Mutual’s offer was worth $6.16 billion.

At the annual meeting, Ahmanson is hoping to seat three of its nominees on Great Western’s board, who then would press the remaining eight directors to support or at least review Ahmanson’s proposal.

Great Western, which has refused to meet with Ahmanson, said Wednesday that it wants to verify Ahmanson’s claim of having the requisite shareholder consents. If so, analysts said, it would be a big boost to Ahmanson, which has made little headway in persuading Wall Street or Great Western’s board that it has the better offer.

“I read into this that [Great Western] shareholders want to see that both bids are reviewed or considered. And that’s pretty significant,” said Morford.

Ahmanson’s announcement on the annual meeting was made an hour before markets closed. Ahmanson’s stock dropped 25 cents to close at $36.875 a share on the New York Stock Exchange, while Washington Mutual shares fell $1.3125 to close at $48.0625 on Nasdaq. Great Western’s shares closed at $41.75, down 62.5 cents on the NYSE.

It was unclear how investors or community groups might react to Washington Mutual’s community reinvestment commitment, which is to be publicly announced today at a library in Watts.

Social issues can to some degree sway Wall Street, and community backing is certainly helpful in securing regulatory approval for a merger. In late 1995, Wells Fargo pledged $45 billion over 10 years, then the largest community reinvestment commitment, which helped the bank defuse community opposition to its hostile takeover of First Interstate.

“We, of course, think investors will view it favorably,” said Killinger.

Killinger, in Los Angeles Wednesday to meet with city officials and community groups, said Washington Mutual had been considering a public community reinvestment pledge since mid-February, when Washington Mutual and Great Western began talks on a possible merger.

Washington Mutual made its foray into California last year by acquiring American Savings of Irvine and its 158 California branches for $1.7 billion.

American Savings, which has more than a dozen branches in lower-income areas, has a strong record of lending to minorities and lower-income borrowers. Like many thrifts, American Savings, Washington Mutual, Great Western and Ahmanson all have outstanding ratings under the Community Reinvestment Act, although community groups say that designation is meaningless.

Among the main components of Washington Mutual’s commitment are $50 billion in housing loans to minorities and borrowers in low- and moderate-income census tracts, $8 billion in consumer lending to borrowers in those areas and $9 billion in small-business loans of $50,000 or less.

In Home Savings’ proposal, the company said it would make $45 billion in mortgages in lower-income areas; $10 billion in small-business loans, of which 30% would be targeted to minorities; and $3.5 billion for financing apartments, with priority given to nonprofit housing developers.

Home Savings also set specific targets for hiring managers and board representation, whereas Washington Mutual said it would continue its policies and programs to ensure its commitment to diversity is met.