Wachovia’s California crisis: “California really is that bad”

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

From Tom Petruno’s Money & Co. blog today: ‘Wachovia Corp.’s shareholders must be wishing they could have a ‘do over’ of the bank’s major foray into California –- its 2006 purchase of Golden West Financial, the California lender that specialized in so-called option ARMs.

‘With mortgage loan losses soaring, Wachovia today slashed its quarterly dividend payment 41%, from 64 cents a share to 37.5 cents. The Charlotte, N.C.-based bank also said it raised $7 billion in fresh capital via common and preferred-stock sales to unnamed investors. ... A headline on a Goldman Sachs & Co. report today on Wachovia put it succinctly: ‘California really is that bad. Golden West riskier than we thought.’

‘The report, by analyst Brian Foran, said the Golden West loan portfolio was being squeezed by the ‘unprecedented period of stress’ in the California real estate market.’

Golden West didn’t just specialize in option ARMS, it lived, ate, and breathed them. Bloomberg News today: ‘Ninety-nine percent of Golden West’s mortgage loans were option ARMs... .’ You wonder, then, how it’s possible that Wall Street didn’t recognize how risky these loans were until, um, today.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.