Washington Mutual Rolls Out Profitability System

It's not quite a hot-dog eating contest, but Washington Mutual seems intent on proving how many banks it can chomp down in a short period of time. Its latest acquisition, Dime Bancorp, came just months after takeovers of Bank United and the mortgage businesses of Fleet and PNC.

But as the number of customer accounts mounts enterprise-wide, so do the pressures of monitoring and recognizing which instruments, or products, are the most profitable.

In order to gain a centralized vision of profitability for all products and to analyze funds transfer pricing (credits and charges on an internal income statement), Seattle-based Washington Mutual in December began implementing and piloting the Enterprise Performance Management (EPM) profitability suite from PeopleSoft.

"Since we have grown to this size, we needed a way to predict and project net interest margins across our set of instruments enterprise-wide," said Tom Fagan, senior vice president and chief information officer at $220 billion Washington Mutual. "We searched for a solution that allows us to get a sense of our profit in a detailed way."

By understanding the profit points within the company, EPM will help generate smoother decision-making. "One of our major concerns is generating the right profitability information to help us make sound business decisions that maximize shareholder value," Fagan said. "This system gives us a rich allocation of our general ledger, and allows us to understand our cost and profit centers, as well as net profitability for each branch."

With the federal government requiring financial institutions to report their 10Q quarterly reports on funds transfer pricing as of January 1, 2001, Washington Mutual had an additional reason to improve its segmentation reporting. The best way to accomplish this, the bank concluded, was to leverage customer and account data that was sitting in an existing Oracle data warehouse.

Supported by a Hewlett-Packard 2250 V-box enterprise server on a Unix operating system, the warehouse stores data on every loan, savings and checking deposit and treasury investment conducted to date, as well as other day-to-day general ledger data flowing from Washington Mutual's 2,300 locations. By linking the PeopleSoft EPM tool to the Oracle warehouse, the bank could determine which products are most profitable.

Financial instrument data from the warehouse is currently being mapped into EPM's relational database, which houses analytical engines that help Washington Mutual perform forecasting and profitability analysis. Overall, the system will help the bank report on its status from all profit centers including customer, product, channel and department level, through a single data file.

A client-server network, which runs on a Windows NT platform and is supported by an IBM RS/6000 enterprise server, will link users to the EPM system. The pilot, which began with eight users, is now up to 18. When the system is completely installed in late September, there will be approximately 40 users.

Although the system is still being tested, Washington Mutual is already seeing early results, including a better quality of output.

"Just by improving the quality of dates stored in the repository, we saw substantial results of updated, clean data by the end of the first quarter of this year," said Liz Irish, vice president of financial information systems at Washington Mutual.

"We uncovered one product that had some invalid dates, and up until we ran the data through the analysis engines, no one picked up on how wrong they were," said Irish. If an adjusted-rate mortgage is stored in the data warehouse with an incorrect date, then when the rate is re-priced, the loan will have a different, flawed recalculation.