Wachovia's fate sealed by Golden West deal

In front of a ballroom full of N.C. bankers in January 2006, Wachovia chief executive Ken Thompson warned of the dangers of "toxic" home loans.

A problem with so-called option adjustable-rate mortgages, he told the group, was that homeowners can end up owing more at the end of the month than the beginning, which can be a "tough situation" for customers and lenders.

"I have literally been amazed at the terms offered by some mortgage lenders, thankfully not at Wachovia and thankfully not so much in North Carolina," he said.

Four months later in May 2006, Thompson took a $24 billion plunge into the mortgage business by buying Oakland, Calif.-based Golden West Financial. Its specialty? The same loans he had cautioned against: option ARMs.

Wachovia, a brand known for conservative lending, had changed course and forged its biggest deal ever. Two and a half years later, the purchase has played a central role in the Charlotte bank's near collapse and its planned sale to San Francisco-based Wells Fargo. Shareholders vote Tuesday on the takeover.

In buying Golden West, Thompson and his board exposed the bank to a nontraditional lender with 60 percent of its mortgages in California even as experts warned of a housing bubble and the perils of option ARMs. The purchase left the bank especially vulnerable in the global financial crisis that ensued. Now the acquisition is a key chapter in a tragic tale that has cost investors billions and threatened thousands of jobs.

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