Golden West Financial

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Golden West Financial, which operated branches under the name World Savings Bank, was the second largest savings and loan in the United States.

The business was a small savings and loan in the San Francisco Bay area when it was purchased in 1963 for $4 million by Herbert and Marion Sandler. By the time Wachovia announced its acquisition in 2006, Golden West had over $125 billion in assets and 11,600 employees. Herb Sandler and Marion Sandler agreed placed^{[clarification needed]} two close friends on the board at Wachovia.^[1] In 2006, Golden West Financial was named the "Most Admired Company" in the mortgage services business by Fortune magazine.^[2]

[edit] Takeover by Wachovia

Wachovia agreed to purchase Golden West Financial for a little under $25.5 billion on May 7, 2006.^[1][3] This acquisition gave Wachovia an additional 285-branch network spanning 10 states. Wachovia greatly raised its profile in California, where Golden West held $32 billion in deposits and operated 123 branches.^[1] Wachovia had completed the acquisition of Golden West Financial Corporation. The integration process is scheduled to be completed mid-2008.^[4] Golden West Financial was finally sold in 2006 for $24.3 billion to Wachovia Bank. Wachovia picked up about $122 billion in option adjustable rate mortgages when it bought the California company and its thrift, World Savings. ^[5]

The acquisition proved disastrous for Wachovia, due to the subprime mortgage crisis. Wachovia fired Chairman and CEO G. Kennedy "Ken" Thompson and took billions of dollars in write-downs because of failed securities transactions, credit card losses and commercial lending that have also decreased in value. Wachovia is among the banks whose billions of dollars in losses from bad management led to the $700 billion plan of the United States government to buy bad loans and assets to bail out the financial industry. ^[5]

[edit] Merger Controversy

The Sandlers say they sold their firm at the top of the market, saying that they were growing older and wanted to devote themselves to philanthropy. A year earlier, in 2005, World Savings lending had started to slow, after more than quadrupling since 1998. They noted that the creditworthiness of World Savings borrowers edged down from 2004 to 2006, while Pick-A-Pay borrowers had credit scores well below the industry average for traditional loans.

World Savings lending volume dipped again in 2006 shortly after the sale to Wachovia was initiated. This prompted World Savings to attract more borrowers by taking a step that some regulators were starting to frown upon, and which the company had been resisting for years: it allowed borrowers to make monthly payments based on an annual interest rate of just 1 percent. While World Savings continued to scrutinize borrowers’ ability to manage increased payments, the move to rock-bottom rates lured customers whose financial reliability was harder to verify. ^[6]

While Wachovia Chairman and CEO G. Kennedy "Ken" Thompson had described Golden West as a "crown jewel", investors did not react positively to the deal at the time. Analysts have since said that Wachovia purchased Golden West at the peak of the US housing boom, and its mortage-related problems would be the ultimate factor to have brought down Wachovia.^[7]

[edit] Notes