Jones Lang LaSalle
Wachovia to Acquire Golden West Bank for $26 Billion
By ANDREW ROSS SORKIN and JULIE CRESWELL
The Wachovia Corporation reached a deal last night to acquire the Golden West Financial Corporation, one of the last major independent banks on the West Coast, for about $26 billion in cash and stock.
Wachovia's board approved the deal yesterday afternoon, while taking a break from the Wachovia Championship P.G.A. golf tournament being held at the Quail Hollow Club near the bank's headquarters in Charlotte, N.C. Golden West's board approved the deal late in the evening.
The deal gives Wachovia, the nation's fourth-largest bank behind Citigroup, Bank of America and J..P. Morgan Chase, an important foothold in California and along the West Coast, a rapidly growing market because of a major population influx. Wachovia, which has grown through a string of mergers it combined with First Union in 2001 and bought SouthTrust Corporation in 2004 does most of its business along the East Coast and in the South.
Before deciding to pursue Golden West, Wachovia had considered the MBNA Corporation, the large credit card company, but that business was sold last year to Bank of America.
The acquisition of Golden West, based in Oakland, Calif., will also bolster Wachovia's market share in mortgage lending, one of Golden West's biggest businesses.
The strategy is one that Wachovia's competitors have tried as well: Citigroup, for instance, did a smaller but similar deal in 2002, when it paid nearly $6 billion for a California savings and loan, Golden State Bancorp, the parent of California Federal Bank.
Under the terms of the deal, Wachovia will pay shareholders of Golden West the equivalent of about $81.07 a share, mostly in stock, but with a small component of cash. That would represent about a 15 percent premium to the price of Golden West's shares on Friday, which closed at $70.51, up $1.82, or 2.65 Öpercent, on speculation of a possible deal.
The deal clears up concern some investors had over the question of succession at Golden West. It has been run for decades by husband-and-wife co-chief executives, Herbert M. and Marion O. Sandler, both in their 70's and noted for their public criticisms in recent years of Federal Reserve policy, regulators and even President George W. Bush.
Under their leadership, the thrift had a long track record of ignoring hot Wall Street trends, like trading exotic derivative products, staying focused for the most part on the business of making loans. Keeping it simple has been a prosperous business model for Golden West, particularly as it built up its mortgage-lending business in recent years in the red-hot California market by offering adjustable-rate mortgages.
Formed in 1963, Golden West's assets today total more than $100 billion and it has posted strong double-digit per-share earnings for decades. While the deal will give Wachovia a strong foothold in the mortgage-lending space, there are growing concerns among investors and Wall Street analysts that growth in that business may have peaked as interest rates creep higher. For instance, mortgage applications have been on the decline in recent months.
But Ken Thompson, chief executive of Wachovia, which has lagged other large banks in size and geographic reach, may have been feeling pressure to make a deal. While the bank has a long history of acquisitions, it had started to get the reputation of being deal-averse among analysts and investors when it walked away from two large strategic deals after balking on the price.
In 2003, it ended discussions with FleetBoston Financial, which would have given it a strong retail presence in the Northeast. Last summer, Golden West walked away from talks with MBNA. In both cases, it watched as its cross-town rival, Bank of America, stepped in and closed the deals.
Golden West is one of the largest brokers of adjustable-rate mortgages and those loans make up the vast majority of its lending portfolio. That has some analysts concerned about the potential for defaults as the rates adjust to reflect higher interest, which could make it more difficult for borrowers to make their payments.
One analyst recently put a sell rating on the company and referred to it as "the poster child for the U.S. real estate bubble." That said, Golden West has a long history with A.R.M.'s. It has been offering the product for decades and has successfully outlasted previous interest rate cycles and periods of large defaults.
While the Golden West deal is significantly larger in scale, this is not Wachovia's first foray into the California market. Last September, it agreed to purchase Westcorp and its subsidiary WFS Financial, which gave it a handful of retail branches in California, but, more important, more than doubled the size of its auto lending business.
Wachovia to Acquire Golden West Bank for $26 Billion
By ANDREW ROSS SORKIN and JULIE CRESWELL
The Wachovia Corporation reached a deal last night to acquire the Golden West Financial Corporation, one of the last major independent banks on the West Coast, for about $26 billion in cash and stock.
Wachovia's board approved the deal yesterday afternoon, while taking a break from the Wachovia Championship P.G.A. golf tournament being held at the Quail Hollow Club near the bank's headquarters in Charlotte, N.C. Golden West's board approved the deal late in the evening.
The deal gives Wachovia, the nation's fourth-largest bank behind Citigroup, Bank of America and J..P. Morgan Chase, an important foothold in California and along the West Coast, a rapidly growing market because of a major population influx. Wachovia, which has grown through a string of mergers it combined with First Union in 2001 and bought SouthTrust Corporation in 2004 does most of its business along the East Coast and in the South.
Before deciding to pursue Golden West, Wachovia had considered the MBNA Corporation, the large credit card company, but that business was sold last year to Bank of America.
The acquisition of Golden West, based in Oakland, Calif., will also bolster Wachovia's market share in mortgage lending, one of Golden West's biggest businesses.
The strategy is one that Wachovia's competitors have tried as well: Citigroup, for instance, did a smaller but similar deal in 2002, when it paid nearly $6 billion for a California savings and loan, Golden State Bancorp, the parent of California Federal Bank.
Under the terms of the deal, Wachovia will pay shareholders of Golden West the equivalent of about $81.07 a share, mostly in stock, but with a small component of cash. That would represent about a 15 percent premium to the price of Golden West's shares on Friday, which closed at $70.51, up $1.82, or 2.65 Öpercent, on speculation of a possible deal.
The deal clears up concern some investors had over the question of succession at Golden West. It has been run for decades by husband-and-wife co-chief executives, Herbert M. and Marion O. Sandler, both in their 70's and noted for their public criticisms in recent years of Federal Reserve policy, regulators and even President George W. Bush.
Under their leadership, the thrift had a long track record of ignoring hot Wall Street trends, like trading exotic derivative products, staying focused for the most part on the business of making loans. Keeping it simple has been a prosperous business model for Golden West, particularly as it built up its mortgage-lending business in recent years in the red-hot California market by offering adjustable-rate mortgages.
Formed in 1963, Golden West's assets today total more than $100 billion and it has posted strong double-digit per-share earnings for decades. While the deal will give Wachovia a strong foothold in the mortgage-lending space, there are growing concerns among investors and Wall Street analysts that growth in that business may have peaked as interest rates creep higher. For instance, mortgage applications have been on the decline in recent months.
But Ken Thompson, chief executive of Wachovia, which has lagged other large banks in size and geographic reach, may have been feeling pressure to make a deal. While the bank has a long history of acquisitions, it had started to get the reputation of being deal-averse among analysts and investors when it walked away from two large strategic deals after balking on the price.
In 2003, it ended discussions with FleetBoston Financial, which would have given it a strong retail presence in the Northeast. Last summer, Golden West walked away from talks with MBNA. In both cases, it watched as its cross-town rival, Bank of America, stepped in and closed the deals.
Golden West is one of the largest brokers of adjustable-rate mortgages and those loans make up the vast majority of its lending portfolio. That has some analysts concerned about the potential for defaults as the rates adjust to reflect higher interest, which could make it more difficult for borrowers to make their payments.
One analyst recently put a sell rating on the company and referred to it as "the poster child for the U.S. real estate bubble." That said, Golden West has a long history with A.R.M.'s. It has been offering the product for decades and has successfully outlasted previous interest rate cycles and periods of large defaults.
While the Golden West deal is significantly larger in scale, this is not Wachovia's first foray into the California market. Last September, it agreed to purchase Westcorp and its subsidiary WFS Financial, which gave it a handful of retail branches in California, but, more important, more than doubled the size of its auto lending business.
posted by Jones Lang LaSalle NJ News Blog at 10:11 AM
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