Wachovia's Golden West Becomes Golden Albatross

(MoneyWatch)  The big loss at Wachovia yesterday may have been a surprise, but according to the company's hometown newspaper the writing had been on the wall all along.

Charlotte Observer writer Rick Rothacker took a long hard look at the spoke that got stuck in Wachovia's wheels - Oakland-based Golden West Financial, a seller of non-traditional loans (and home of the "Pick-A-Payment" loan) that Wachovia bought for $25.5 billion in 2005, just as regulators were increasing scrutiny of high-risk loans.

There's lots of good insight in the piece. Executives stitched the deal together in just 11 days, hardly ample time for due diligence, and then hailed it as a perfect fit.

Cultural differences became clear to some at a one-day training session in Delray Beach, Fla. At a Golden West facility there, one of the company's executives explained how Pick-A-Payment loans were the answer seemingly to every borrower's needs, executives recalled.

"We'd call it drinking the Kool-Aid," said one of the former executives. At least a half dozen top Wachovia mortgage executives would begin leaving after the deal closed in October 2006....

Some Wachovia loan officers have told the Observer that if they didn't meet certain minimum sales goals, they faced discipline, including termination. The company says it hasn't fired employees over Pick-A-Payment loans specifically and no longer has goals for selling just that product.

Ironically, when Wachovia CEO Ken Thompson took the reins in 2000, his first major decision was to shut down The Money Store, a troubled California lender acquired under the previous CEO. There were lessons there about trying to mesh a high-risk lender with a more conservative bank. For whatever reason, Thompson quickly forgot those lessons.