GDW’s ride from $0.25 to $80

In 30 years, Golden West’s stock has climbed from 25 cents a share to over $80. The WSJ has more:

The long-running boom in the nation’s real-estate market has led to an impressive run of profitability at mortgage lenders like Golden West, whose shares were trading Friday near their all-time high. But with recent signs of some softening in real estate, Wachovia investors are sure to be asking whether the sale is a sign that the Sandlers view the market as having topped out. While Golden West has a conservative track record for underwriting loans, increased competition could raise the risk that loans the company has provided will sour, leaving Wachovia to deal with the losses.
If approved by shareholders and regulators, the combination of the two financial companies would establish banking pillars on both coasts of the U.S., as well as offices the two companies have in between in states such as Texas. Golden West will add about 10,000 employees to Wachovia’s current employment level of about 97,000. Wachovia said it plans to cut less than 1% of the expense base of the combined companies, but added that no employees who deal directly with customers are likely to lose their jobs. The deal is expected to close in this year’s fourth quarter.
Buying Golden West will let Wachovia extend its brand name across 285 branches in 10 states, where Golden West currently flies the World Savings Bank banner. The deal will make Wachovia the sixth-largest deposit-taker in California, the most-populous U.S. state, though its market share of about 5% would trail far behind those of Bank of America Corp., Washington Mutual Inc. and Wells Fargo & Co., based on the latest Federal Deposit Insurance Corp. data. Wachovia said the deal would add to its per-share profit, excluding expenses and amortization triggered by the acquisition, by the end of the second year after the purchase.
Golden West’s primary appeal is its clout in adjustable-rate mortgages, or ARMs, on residential properties, generated through offices in 39 U.S. states where Golden West drums up business from local real-estate agents, mortgage brokers and directly from consumers. Wachovia Chairman and CEO G. Kennedy Thompson has been pushing hard over the past year to beef up the bank’s consumer-lending operation, complaining that its offerings have been weak.
The lending business has been good to Golden West, last year resulting in net profit margins of 44% on revenue of $3.4 billion. Investors have flocked to the company, pushing Golden West shares up 10% over the past year, and by more than three-and-a-half-fold since 2000. On Friday, the company’s shares traded at about 14.4 times current earnings, according to data compiled by CapitalIQ. That placed it slightly above the average for U.S. thrifts, which trade at 14.1 times, and above rivals Washington Mutual (12.3 times) and Countrywide Financial Corp. (10.1 times).

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Posted by on May 8th, 2006 at 7:33 am


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