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In a tense shareholder meeting that opened with the call for his ouster, Wachovia CEO Ken Thompson stated the obvious that Golden West Financial Corp (parent to World Savings) was a “poorly-timed” acquisition. I’m giving Ken Thompson a belated “Captain Obvious” award for that admission.
I remember saying that when Wachovia acquired World it was disastrous timing. It’s like coming in to a car dealership and buying the shiny new car that’s about to explode the next time it’s turned on. I don’t care what anyone says about the strict value guidelines used by World and their mitigating affects for recouping value from defaults, etc. The World appraisals were not so tight to support a home decline of 20% plus across California. They were not so tight to support that loss and allow for their most-aggressive 125% maximum negative amortization cap. (Most option ARMs recast at 110% of the loan balance - World’s don’t reset until 125%).
These two equity sucks (depreciation and excessive negative amortization) leave Wachovia out in the cold on a ton of loans that are just going to go further south over the next 2 to 5 years.
Unfortunately for the shareholders of Wachovia the admission comes juuuust a bit too late to save them from a dividend cut an the dilution of their holdings due to the additional capital raised by the bank.
But at least they’ll feel better after venting:
For roughly an hour, Thompson faced a parade of upset shareholders who questioned him on topics that included the Golden West acquisition, his compensation and how the company will extricate itself from its current difficulties. Shareholders in the audience often applauded comments critical of Thompson or the board.
“I have no confidence in you whatsoever,” one shareholder told Thompson.
“Thank you very much,” the CEO responded wryly.
My advice to Mr. Thompson would be to watch your mouth for fear of one of your shareholders throwing a sucker punch as a last resort to get the message across. (I hold no shares in Wachovia.)
