CHARLOTTE, N.C. — Wall Street is still not convinced that Wachovia Corp.'s $24-billion purchase last year of one of the country's largest mortgage lenders was a smart bet. But bank executives say that the doubters are wrong and that the takeover is working out just fine.
Shares in the nation's fourth-largest bank slumped after its May 2006 acquisition of Golden West Financial Corp. of Oakland and moved even lower in recent weeks as turmoil in mortgage markets intensified. Golden West operated 285 retail banking facilities under the World Savings Bank name in California and nine other states, and its lending was focused on adjustable-rate mortgages.
Never mind the delinquencies and defaults that contributed to thousands of job cuts and bankruptcy filings at dozens of mortgage lenders around the country, say top executives of Charlotte, N.C.-based Wachovia.
"We set out to build our franchise with the fastest-growing market in the West," Wachovia's Chief Financial Officer Tom Wurtz said. "We have been successful."
Other than temporarily suspending making home loans through outside brokers to those with slightly better credit than sub-prime borrowers, Wachovia hasn't made any radical changes at the onetime Golden West locations. What was once Golden West's deposit base has grown 26% to $75.3 billion since the deal was announced, giving the bank a pot of relatively inexpensive funds that can be deployed elsewhere to grow Wachovia's other lines of business.
In Wachovia's second quarter, the addition of Golden West's mortgage business helped drive a 24% jump in profit. This week, Wachovia's board approved a 14% increase in the company's regular quarterly dividend to 64 cents a share.
But the trouble in the mortgage market has also caused "a little pain," Wachovia Chief Executive Ken Thompson acknowledged to analysts last month. The bank reported a sharp increase in unpaid mortgages and loan charge-offs in the second quarter and earmarked $179 million to pay for future credit losses, about three times more than the company set aside a year earlier.
"It's hard at this point to guess the significance of this," Wurtz said. "There have been a vast amount of competitors that have gone out of business or changed their strategies. No question [the current environment] is going to continue to put pressure on the housing market."
