sports, 1c how he still gets mick jagger hikes …...mick jagger how he still gets what he wants in...
TRANSCRIPT
w w w . c h a r l o t t e . c o mSUNDAY, MARCH 30, 2008 Price varies by county| $ 1.50C D E F • • •+
K
© 2008 The Charlotte
Observer Vol. 139, No. 90
By Cleve R. Wootson Jr.
Charlotte-Mecklenburg police have identified 36 “hotspots” where concentrated crime demands their attention –and can make life hard for people who live, work or shop there.
The hot spots contain some of Charlotte’s most violentstreets but also include upscale retail areas where theftsfrom cars prompt most calls for police.
The trouble spots are spread across the county, as policehave targeted the two or three most consistently challengingareas in each of the 13 patrol divisions. Many hot spots areclustered along highways and in areas packed with agingapartments, though every section of Mecklenburg has aplace that keeps police busy.
Charlotte’s three major shopping malls and a Ballantyne
POLICE TARGETHOT SPOTS
Crime clusters at apartments, near highways and retail areas
DANA ROMANOFF – [email protected]
Charlotte-Mecklenburg police Officer R. Sanner patrols the Wood Field apartments near Albemarle Road and Farm Pond Lane.The area is one of the city’s hot spots for crime. Some residents say they’ve noticed a stronger police presence.
855
7777
44488555448855
Sally Johnson,a resident of a
Farm Pondapartmentcomplex in
eastCharlotte,
carries ametal pipe
with her whenshe goes to
and from hercar in the
parking lot.
Arts & Living..1EBooks............5ECelebrations .1HClassified.......1FEditorial ......26AHoroscope ....6E
Local & State.1BMoneywise ...1DMovies..........6EObituaries.....4BSports ...........1CTravel .............1I
Delivery Assistanceor to Subscribe........800-532-5350
DrearyLow: 43. High: 45.Chilly with periodsof light rain todayand tonight. Warmer
Monday. Forecast, 28A.
Politics | 4A
Will tough fightleave party beaten?Some Democrats fear that if the
close contest between Sens.
Hillary Clinton and Barack
Obama goes on too long, it will
hurt the party in November.
And they fear alienating large
blocs of voters if superdelegates
decide the nomination.
▲
Edwards won’t say if he’ll
make an endorsement. 4A.
MoneyWise | 1D
How Charlotte’seconomy is faringAssessing the state of jobs,
retail, housing and growth.
Obama Clinton
By Kevin Cary
DETROIT — Davidsonbasketball player BryantBarr understands what’s atstake today.
“We know the wholeCharlotte area will bewatching and cheering forus,” he said of the Wildcats’5:05 p.m. Midwest Regionalchampionship gameagainst No. 1 seed Kansas.“It just makes us want iteven more.”
A victory today at FordField would send No. 10seed Davidson to the FinalFour in San Antonio for ashot at its first NCAA Divi-sion I title.
“We might be a littleschool,” said Davidson starguard Stephen Curry. “Butwe can play with anyone inthe country.”
More than 550 students –roughly a third of David-son’s 1,700 student popula-tion – are expected to seethe game in Detroit.
That includes 200 whowere expected to boardfive buses at 3 a.m. todayfor the 11-hour trip.
Staff Reports
The 18-inch metal pipe fitscomfortably in Sally John-son’s hand.
She uses it for protection asshe makes her way from theparking lot, up a walkway andtwo flights of stairs, into hereast Charlotte apartment.There, her son waits, watch-ing the shadows surroundinghis mother.
This has been her nightlyroutine since Feb. 8, whentwo men robbed them at gun-point. Andrew, 15, beggedthem to leave.
“Just take what you want,”he remembers shouting.
The robbers beat her, stoleher purse – and her peace ofmind.
This is her life in a hot spot,one of 36 areas targeted byCharlotte-Mecklenburg po-
High-crimearea has fearas a constant
Online VideoA ride-along with a Charlotte-Mecklenburg police officerWWW.CHARLOTTE.COM/news
SEE HOT SPOT |9A
SEE TRENDS|8A
Detailedmap insideSee whereMecklenburgCounty’s “hotspots” are forviolent andproperty crime.
JEFF SINER – [email protected]
BEST DON’T-MISSGRANDFATHERHIKES
IN TRAVEL, 1I
MICK JAGGER
How he still getswhat he wants
IN PARADE MAGAZINE
UCLA beats XavierSPORTS, 1C
By Rick Rothacker
When she stopped by a Wachoviabranch in Charlotte last month, MarilynO’Connor asked about refinancing hertownhome. Instead, she got a pitch for a
“Pick-A-Payment” mortgage that offeredflexible payment options but a higher in-terest rate.
O’Connor said she initially agreed toapply for a Pick-A-Payment loan untilshe learned the interest rate. The fullprincipal and interest payment optionhad a rate of 6.85 percent, higher than the6.75 percent rate on her existing mort-gage. A regular 30-year fixed rate at thetime had a 5.5 percent rate, according toher loan documents.
“I said, ‘Are you crazy?’ ” O’Connor, 66,said. “I’m not going to spend that muchon interest. It was very disheartening.”
Since buying Pick-A-Payment special-ist Golden West Financial in 2006, theCharlotte-based bank has been rollingout these nontraditional loans atbranches and mortgage offices aroundthe country. But the push has become asore spot with some customers and em-ployees. Loan officers say they have facedintense pressure from the company to
persuade borrowers to use the loans.Wachovia has required its loan officers
to sell a minimum number of Pick-A-Payment, traditional and other loans orface discipline, including termination, ac-cording to interviews and documents. A
CUSTOMERS, EX-EMPLOYEES QUESTION PICK-A-PAYMENT
Complex Wachovia mortgage program worries some
SEE WACHOVIA|6A
MORE INSIDE, 6A
• Selling Pick-A-Payment mortgages: Asample script from Wachovia• Wachovia No. 2 in option ARMs
–––––––
Staffers had a sample script –and sales goals to meet
–––––––
By Pat Stith
(Raleigh) News & Observer
State government public in-formation officers were in-structed by Gov. Mike Easley’spress office to delete e-mail toand from the Governor’s Of-fice, according to notes theGovernor’s Office releasedSaturday.
Andrew Vanore, a lawyerwho works for Easley, pro-duced notes made by two pub-lic information officers show-ing that they and others weretold at a meeting May 29 to de-stroy e-mail messages. Vanoresaid a third public informationofficer, whom he would notidentify, also recalled those in-structions.
Vanore said, however, thatthe notes don’t mean what
they say. Healso said theinstructionswere not fol-lowed.
The News& Observerhad requestedthe notes ofthe periodic
meetings of the public infor-mation officers.
Julia Jarema, public infor-mation officer at the Depart-ment of Crime Control andPublic Safety, recorded thisnote for the meeting in ques-tion: “Public records request –increasing – careful of email –delete emails to/from gov. of-fice every day”.
Diana Kees, public informa-tion officer at the Departmentof Environment and NaturalResources, recorded this note:“emails — more & more pub-lic records requests (blogs?)be careful w/emails; deleteemails to and from gov officeevery day”.
Questions about the waythe Easley administration han-dles e-mail arose after anN&O series, “Mental Disor-der: The Failure of Reform,”which ended March 2. The se-ries reported on an ill-con-
AT STATE AGENCIES
Officialstold todestroye-mails
–––––––
Notes suggest Easley’s press office gave order
–––––––
SEE EASLEY|12A
Online ExtrasFired public information officerfor N.C. Department of Healthand Human Services sayse-mails were deleted.WWW.CHARLOTTE.COM/news
Easley
SHOT AT F INAL FOUR
Davidson’sbiggestgame ever
6A SUNDAY, MARCH 30, 2008 • • • THE CHARLOTTE OBSERVER | www.charlotte.comFROM PAGE ONE
training script obtained by theObserver tells loan officers,known as mortgage consultants,how to sell Pick-A-Paymentloans, including empathizingwith customers’ cash flow prob-lems.
An excerpt: Do you have anycredit card debt? [Wait for ac-knowledgement.] I know I cer-tainly have my share. And we’repaying 13 to 29 percent.
The bank said it has sales goalslike any company. SpokesmanDon Vecchiarello declined toprovide details on past targetsbut on Friday said the bank nolonger has a “specific Pick-A-Payment goal at this time for em-ployees to sell.”
While Wachovia dismissesemployees from time to time forunderperformance, “we have notterminated anyone for not sellingenough Pick-A-Pay loans andwill not in the future,” Vecchia-rello said.
The loans can be more profit-able for the bank because theycarry a higher interest rate thantraditional mortgages and be-cause the bank keeps them in itsown portfolio, instead of sellingthem off to investors. Consumeradvocates contend they shouldbe reserved for savvy customerswho understand a complex prod-uct that can increase a borrow-er’s loan balance instead of de-creasing it.
Analysts also are worried be-cause Pick-A-Payment loans areshowing higher delinquenciesthan traditional mortgages amidthe U.S. housing crisis, partic-ularly in tough housing marketssuch as California. The bank’sstock is down more than 56 per-cent since agreeing to buy Gold-en West, which also gave Wacho-via new West Coast branches.The shares closed Friday at$25.99, down $1.08.
The bank, which has burnish-ed a strong customer service rep-utation in recent years, acknowl-edges the loans aren’t right for allcustomers but argues they offerflexibility to borrowers whoneed extra cash for savings or topay down other debt. The banksays the loans come with numer-ous protections, including a capon the amount the loan balancecan increase. It also analyzes theborrower’s ability to repay basedon the full interest rate, not a lowintroductory rate.
Pick-A-Payment loans are“one of the many products we’reable to offer,” Vecchiarello said.“We feel like we do it in the rightway.”
Monthly options
The Pick-A-Payment, or Pick-A-Pay, loan gets its name becauseit comes with four monthly pay-ment options. Homeownerseach month can make one of fourpayments: • Full interest and principal pay-ment that pays off the loan in 30years.• A higher payment that wouldpay off the loan in 15 years.
• An interest-only payment.• A minimum payment thatdoesn’t cover all of the necessaryinterest, with the unpaid interestadded to the loan balance.
The loan comes in adjustable-rate and fixed-rate versions.
Wachovia has expanded intothese mortgages at a time whenothers are pulling back. Char-lotte-based Bank of America, forexample, stopped making theloans last year.
Since buying Golden West,Wachovia has been promotingPick-A-Pay loans with a TV com-mercial, in-branch brochuresand information on its Web site.The push comes as Wachoviaand other banks are trying to im-prove profits as they wrestlewith bigger loan losses and aslowing economy. Wachoviafaces particular scrutiny becauseit bought Golden West for$24 billion at the peak of thehousing boom.
The Observer in January re-ported that employees receivehigher incentive pay for sellingPick-A-Pay and some otherloans. The bank says it pays theextra compensation because theloans take longer to explain tocustomers. Consumer advocatesworry that could encourage em-ployees to sell inappropriate
loans to customers.The bank has three main ways
to sell mortgages: call centersthat handle phone calls and Website inquiries; loan officers whowork in mortgage offices; andloan officers who work in bankbranches. The Observer hasheard from employees in allthree areas who say they havefaced mandates to sell morePick-A-Pay loans.
A former Wachovia mortgageconsultant in Texas told the Ob-server he was supposed to selltwo Pick-A-Pay loans per month,a requirement he didn’t meet.The consultant, who spoke oncondition of anonymity becausehe didn’t want to jeopardize hiscareer, said he felt the loans wereproper for only a limited numberof customers. In particular, hedidn’t think they were right forfirst-time homebuyers whomight not understand their loanbalance could increase.
“That’s all we heard about wasPick-A-Pay,” said the consultant,who said he was dismissed for“production reasons.” “If yousold a 30-year fixed (rate mort-gage), they’d say, ‘Why didn’t yousell a Pick-A-Pay?’ ”
Another former loan officer,who also spoke on condition ofanonymity to protect her career,told the Observer she left lastyear because of the pressure. Shesaid she didn’t want customers toowe more money on their loanwhen they went to sell theirhome. “I want them to have10 percent down for their nexthome,” she said.
According to an employeedocument dated last fall, loan of-ficers in branches had a “mini-mum standard” requiring themto sell one Pick-A-Pay loan, onetraditional mortgage and oneother type of mortgage permonth. A higher “performancegoal” called for selling two Pick-A-Pay loans per month, plus six
other loans. If standards werenot met, “it may lead to furthercorrective action up to and in-cluding termination,” the docu-ment said.
Vecchiarello, the bank spokes-man, said the company’s salesgoals have been changing in arapidly shifting mortgage envi-ronment. The company, he said,wants its employees to sell a mixof loans, including traditionalmortgages that can be sold to in-vestors as well as Pick-A-Pay andother mortgages that it keeps inits portfolio.
Ira Rheingold, executive direc-tor of the National Association ofConsumer Advocates, said pres-sure on employees to sell Pick-A-Pay mortgages worries him“enormously” because the loansaren’t suitable for most borrow-ers.
“Employees are caught in themiddle trying to hold onto theirjobs,” he said. “Unless (borrow-ers) are really sophisticated andunderstand what they’re doing,it’s a recipe for disaster.”
Additional scrutiny
In the past couple of years,nontraditional mortgages havegained more scrutiny from reg-ulators because of concernsabout their complexity and therisk they can present lenders.
In 2006, regulators issuedguidance to banks that includeda caution against employee in-centive plans that could lead to aheavier concentration of theseloans in financial institutions’books. “Attention should bepaid…to using compensationprograms that do not improperlyencourage lending personnel todirect consumers to particularproducts,” the guidance, signedoff on by five regulatory agen-cies, said.
The Office of the Comptrollerof the Currency and the Office ofThrift Supervision, two regula-
tors that monitor Wachovia, de-clined to comment on the bank’spolicies.
Vecchiarello said Wachovia’sgoal is to listen to customers, as-sess their needs and providethem with options. “That’s thebeauty of our model,” he said.
In the case of O’Connor, theCharlotte customer, a Wachovialoan officer outlined a samplePick-A-Pay loan that had fourmonthly payment options, rang-ing from $917.18 to $442.63, ac-cording to materials she re-ceived.
O’Connor, who works parttime in home health care, saidshe didn’t want flexibility at theexpense of a higher interest rate.“Listen, I pay my mortgage nomatter what,” she said. “If some-
thing comes up, that’s why I havesavings.”
After turning down the Pick-A-Pay loan, she initially chose torefinance her home through Wa-chovia with a traditional 30-yearfixed-rate mortgage at an esti-mated rate of 5.5 percent. Thenshe and her husband, Michael,decided to hold off on refinanc-ing all together. She lost a $75 ap-plication fee.
Vecchiarello, the bank spokes-man, said the bank’s loan officerappears to have acted appropri-ately by giving a customer op-tions. The Pick-A-Pay loan “is avaluable product to offer to cus-tomers,” he said. “It’s not rightfor everyone.”
Rick Rothacker: 704-358-5235
Complex mortgage plan worries some–––––––
Wachovia from 1A
DANA ROMANOFF – [email protected]
Marilyn O’Connor felt that Wachovia did not have her best interests in mind when she tried to refinanceher townhome. A loan officer originally suggested Pick-A-Payment for her mortgage, O’Connor says.
’04 ’05 ’06 ’07
’04 ’05 ’06 ’07
$145$238 $255
$111
$2.92 $3.12 $2.98 $2.43
Option ARMsIn billions o rs
All mortIn trillions f dollars
Slower mortgage lendingOption adjustable-rate mortgages, which Wachovia calls Pick-A-Payment loans, have declined faster than traditional mortgage originations overall.
SOURCE: Inside Mortgage Finance STAFF CHART
Selling Pick-A-Payment mortgagesA training script obtained by the Observer gives Wachovia loan
officers a sample pitch for selling Pick-A-Payment loans, whichoffer customers flexible payment options but can increase aborrower’s loan balance.
In the 14-page document, the first two pages emphasize thevariety of products the bank offers but the rest is mostly aboutPick-A-Pay loans and how “savvy homeowners can turn theirmortgages into smart financial planning tools” in today’seconomy.
From the presentation: If you’re like us, there’s more coming out than coming in somemonths, and we start putting more and more charges on ourcredit card. …What can we do? Uncle Sam isn’t going to take less.Or the car company. Or the credit card company. The childrenneed to be cared for. You can’t get along without insurance. Plus,you need to eat, and keep the lights on. That leaves yourmortgage payment. …What if you could pay a lot less on yourmortgage some months when you need flexibility?
The script instructs loan officers to tell customers thatchoosing the minimum payment option adds to the customer’sloan balance. But the focus is on the extra “cashflow” customerscan get by paying less per month.
Wachovia has training programs for everything the bank doesas it tries to help its salespeople be the “best they can be,” bankspokesman Don Vecchiarello said. “The most important thing,” hesaid, “is listening to the customer.”
Wachovia No. 2 in option ARMsAccording to Inside Mortgage Finance, Wachovia in 2007 was
the second biggest provider of option adjustable rate mortgages,or option ARMs – the category that includes Pick-A-Paymentloans.
Seattle-based Washington Mutual was No. 1 with $23.67 billionin loans, ahead of Wachovia’s $22.81 billion. About one-fourth ofWachovia’s $97 billion in mortgage volume last year was in optionARMs.
Over the last six months, about 11 percent of loans made in theCarolinas were Pick-A-Pay loans, the bank said.
One of the key features of an option ARM is that borrowers canmake a minimum payment that doesn’t cover all of the interest.When this occurs, the total loan balance grows, instead of shrinks.
Wachovia calls the amount added to the loan balance “deferredinterest.”
At the end of December, Wachovia borrowers had accumulated$3.1 billion in deferred interest, nearly double the balance at theend of 2006. The amount, though, was a small part of the bank’s$227 billion consumer real estate portfolio, which includesmortgages and home-equity loans.
By Andrew Taylor
and Jim Kuhnhenn
Associated Press
WASHINGTON — So much for trimming thepork.
The practice of decorating legislation withbillions of dollars in pet projects and federalcontracts is thriving on Capitol Hill – despitepublic outrage that helped flip control of Con-gress two years ago.
More than 11,000 ofthose “earmarks,”worth nearly $15 billion,were slipped last yearinto legislation tellingthe government whereto spend taxpayers’money this year, keep-ing them at the center ofWashington’s culture ofmoney, influence andpolitics.
It’s a pay-to-playsandbox where, criticssay, waste and abuse of-ten obscure the goodthat earmarks can do.
An examination ofmany of those earmarksin a project sponsoredby the Associated PressManaging Editorsfound much greater dis-closure since 2006, butit found no end to whathas become ingrainedbehavior in Congress.
Millions of the dollarssupport lobbying firmsthat help companies, universities, local gov-ernments and others secure what critics suchas Republican presidential candidate JohnMcCain call “pork-barrel” spending. The lawforbids using federal grants to lobby, but lob-byists do charge their clients fees that oftenequal 10 percent of the earmark they help win.
Earmark winners and their lobbyists oftenreward the lawmakers who sponsor their proj-ects with campaign contributions. For manymembers of Congress – especially those onthe appropriations committees, such as Rep.John Murtha, D-Pa. – campaign donationsfrom earmark-seeking lobbyists and corpo-rate executives are the core of their fund-raising.
Rep. David Price, the only N.C. lawmakerwho’s on an appropriations committee, saidhe didn’t keep track of how many of the$90 million in earmarks he sponsored were
Fundingof petprojectsthrivingAnger over earmark abuse hasn’tstopped lawmakers from addingbillions in spending to legislation.
2008Earmarks
NATIONALTOTAL
$15 billion
N.C. TOTAL
$234million
S.C. TOTAL
$151million
ONLINEDATABASE
State-by-stateearmarkscharlotte.com/news
SEE EARMARKS, 11A
WHAT’S AN EARMARK?An earmark is a specific project not
requested by the president but inserted intospending bills. Critics call it “pork barrel”intended to benefit a politician’s constitu-ents in return contributions or votes. Ad-vocates say earmarks ensure communityprojects are funded.
98o 72o
Blistering: Partly cloudy but hot
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ANCHOR GUIDEDVIEWERS THROUGHOLYMPIC MASSACREJim McKay, the ABC sports broad-caster who covered 10 OlympicGames and anchored “Wide World ofSports” for 25 years, died Saturday.In 1972, he guided viewers throughthe sporting world’s most horrificmoment, the 1972 Israeli massacre atthe Munich Olympics. 2C
Big Brown losesNo Triple Crown winner this year. 1C
ASSOCIATED PRESS PHOTO
TODAY’S MUST-READ
Seniors you should know:Christina Nixon conquershigh school while battling arare disease that bringsuncertainty each day. 1B
© 2008 The Charlotte ObserverVol. 139, No. 160
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By Jim Morrill
Bill Belk hasn’t had much luck withjudges.
In a marathon divorce case, one deniedhim custody of his children. Another award-ed his ex-wife a majority of their $5 millionjoint estate. And in February, a third foundhim in contempt and threatened to slap himin jail.
On the day Belk got the contempt order –for failing to give his ex-wife tickets to aNorth Carolina football game – he went toRaleigh and filed to run for judge. His fall op-ponent: Ben Thalheimer, the MecklenburgCounty judge who presided over the longand costly property phase of his divorce.
District Court seems an unlikely career
move for a scion of Charlotte’s mostprominent retail family, a millionaire so-cialite who lives in a gated communityand enjoys foreign travel and fine wine.The workload is heavy and complex, eventedious. The starting pay is $106,445.
“I’m not running just for DistrictCourt,” Belk says. “I’m running to reformthe system.”
Critics call it sour grapes. Some warnhis bid could have a chilling effect onjudges who rule in cases involving rich lit-igants who could threaten their careers.
It’s one of more than a dozen contestedcourt races facing Mecklenburg voters.All are nonpartisan and relatively ob-scure, certain to be eclipsed by higher-profile campaigns and more likely to bedecided by name recognition than issues.
“There are no safe District Court seatsanymore,” says retired Judge Chase Saun-ders. “All one can hope for is an informed
Run for judge rich in dramaBill Belk opposes the man whoseruling cost him big in a divorce.He wants to “reform the system.”
Bill Belk
SEE RUN, 6A Judge Ben Thalheimer
By Rick Rothacker
At a party before last month’s WachoviaChampionship, bank clients and VIPs werepreparing for a sun-splashed week at QuailHollow Club watching the world’s best golf-ers.
The Charlotte bank had suffered a tumultu-ous spring. But chief executive Ken Thomp-son’s mood was good.
“Why wouldn’t it be?” says Charlotte busi-nessman Cameron Harris, who saw his friendat the event. “He didn’t know his board wouldturn on him.”
A month later, Thompson, 57, would be outof a job, forced to retire by the board after eightyears at the helm and 32 years at the company.
People who know Thompson say he was sur-prised by the timing and disappointed. He hadbeen determined to turn the bank around.
Just two years ago, Thompson’s ousterwould have been unthinkable. Wachovia’sstock had appreciated significantly under histenure, he’d revitalized customer service andhis acquisitions had cemented the bank as along-term player in the industry.
The former Rocky Mount high schoolsports star had become a respected figure onthe Charlotte civic scene and in the bankingworld. Earlier this year, he rose to chairman ofa prestigious industry trade group.
His decision, however, to buy mortgage spe-cialist Golden West Financial in May 2006 atthe peak of the housing boom would prove a
pivotal blunder. The deal flayedhis reputation as a cautious buyerand later unleashed burgeoningloan losses.
Against this backdrop, a rash ofmissteps in April and May thatraised questions about manage-ment’s grip on the company’s
business practices ultimately would costThompson his job. The bank’s board, led byinfluential chairman Lanty Smith, decidedthat cumulative “disappointments and set-backs” required a new leader.
Smith, a director for 21 years, had backedThompson’s deals over the years and voicedsupport for him just weeks earlier. In an inter-
THE SWIFT FALL OF
KEN THOMPSON
He was respected for cautiously building Wachovia into a banking pillar, but some missteps and a tumbling economy brought an end to his tenure
1976Joins First Unionout of Wake For-est’s businessschool.
2000Succeeds EdCrutchfield as CEOand leads a mas-sive restructuring.
2001Merges First Unionwith Wachovia,fending off rival bidby SunTrust.
2002First receives rec-ognition for topcustomer satisfac-tion in banking.
2006Seals $24 billionpurchase of GoldenWest Financial toexpand into Cali-fornia and mort-gages.
JUNE 1Retires at boardrequest.
SEE THOMPSON, 4A
Smith
STAFF ILLUSTRATION BY WM PITZER
By Adam Nagourney
and Mark Leibovich
New York Times
WASHINGTON — Sen. Hillary Clin-ton ended her campaign for presi-dent Saturday with a rousing fare-well to thousands of supportersand an emotional and unequivocalcall for them to get behind Sen. Ba-rack Obama, who defeated her forthe Democratic nomination.
For 28 minutes, standing on a
stage in the National Building Mu-seum, Clinton spoke not onlyabout the importance of electingObama, but also the extent towhich her campaign was a mile-stone for women seeking to be-come president.
She urged women who had fol-lowed her campaign not to take thewrong lesson from her loss.
“You can be so proud that, fromnow on, it will be unremarkable for
RON EDMONDS – ASSOCIATED PRESS PHOTO
Sen. Hillary Clinton, D-N.Y., speaks in Washington on Saturday. “I askall of you to join me in working as hard for Barack Obama as you havefor me,” Clinton said.
Clinton ends bid withcall to elect ObamaAfter a heated campaign,she praises him and talksabout her milestone run.
SEE CLINTON, 7A
SEE VIDEO OF CLINTON’S SPEECH
www.charlotte.com/politics
4A Sunday, June 8, 2008 ••• charlotte.com • The Charlotte Observer
view, he said the decision wasdifficult because Thompsonwas a friend, but board mem-bers had a “higher obligation tothe company, its shareholdersand its employees.”
In March, as Thompson’stroubles were building, stateRep. Ruth Samuelson, R-Meck-lenburg, ran into him at theFoundation for the Carolinasannual meeting at the Char-
lotte ConventionCenter. Thomp-son, who declinedto comment onhis departure, wasset to become thephilanthropy’schairman.
Samuelson,who valued his counsel overthe years, gave him a hug andtold him she was praying forhim. “It must not be working,”he joked, Samuelson recalls.He added: “This is the hardestthing I’ve ever had to gothrough.”
N.C. Gov. Mike Easley, aboyhood friend from Rocky
Mount who regu-larly seeks hiseconomic advice,talked to Thomp-son about a weekago, when his de-parture was alrea-dy underway.Thompson was
handling it well and praised thecompany and its employees,Easley said.
In high school, Thompsonwould chew out teammateswho didn’t give their full efforton the football field. Easleyknew Thompson had drivenhimself just as hard over histhree-decade career. “I toldhim, ‘You need to take abreak,’ ” Easley said.
First Union-Wachovia merger
Thompson had long been arising star when he took over in2000 as CEO of First Union,which would later become Wa-chovia. An internal survey ofFirst Union’s top 30 leadersshowed he ranked No. 1 in threecategories: integrity, leader-ship and teamwork.
Known as an approachablehard worker, his first task wasto revive a company suffering
indigestion fromrapid-fire acquisi-tions under pre-decessor EdCrutchfield. In amassive restruc-turing, he closedpoor-performingunits, slashed jobs
and sold off businesses. His next stroke was a sur-
prising in-state merger in 2001with Winston-Salem-basedWachovia, which allowed thecompany to cut costs andchase more customers inwealthy markets. The deal car-ried a relatively low price tag,and First Union took Wacho-via’s more respected name.The combined company soonunveiled a new marketing ta-gline: “Uncommon Wisdom.”
Thompson frequently la-beled Wachovia a survivor in aconsolidating industry andforged deals to absorb Pruden-tial Securities in 2003 and tobuy SouthTrust bank in 2004.But he passed on riskier pur-chases of FleetBoston Finan-cial and credit card issuerMBNA. Both companies end-ed up in the hands of Charlotterival Bank of America.
“I don’t think Ken ever re-gretted missing on thosedeals,” said a source familiarwith the situation. “He wasn’t adeal junkie.”
Instead, he started a creditcard operation from scratch,built branches in Californiaand hired mortgage loan offi-cers. But these moves wereslow and expensive. At times,he expressed frustration thathis stock price appeared to suf-fer because of Wall Street’snervousness about another bigdeal.
In the spring of 2006, Gold-en West approached Wachoviaabout a sale. The Oakland,Calif.-based savings and loanwould give Wachovia an im-mediate beachhead in Califor-nia, plus a mortgage businessthat historically had fared wellin tough economic times.
Wachovia mortgage execu-tives were surprised becausethe bank had stayed away fromthe kind of risky loans thatGolden West offered. The deal,approved by the board, cametogether in 11 days and immedi-ately faced investor backlashbecause the housing market
was showing signs of slowing.Later, analysts would ques-
tion whether Wachovia did athorough enough examinationof Golden West’s portfolio. Butthe source familiar with the sit-uation said the bank’s biggestmistake was not predictingsuch a precipitous decline inthe housing market.
As the deal was coming to-gether that summer, Thomp-son remained optimistic. “Wethink we got the right mort-gage company,” he said in aninterview.
Mortgages go downhill
While many financial insti-tutions were blindsided by thedepths of the housing collapse,Wachovia faced particular pit-falls.
Golden West’s so-calledPick-A-Payment mortgageswould end up souring fasterthan traditional mortgages.These loans allowed custom-ers to pay less than the neces-sary interest, inflating borrow-ers’ balances. They also wereconcentrated in hard-hit Cali-fornia markets.
Next, in the second half of2007, a credit crunch whackedinvestment banking opera-tions at Wachovia and peers.The bank took billions of dol-lars in writedowns because thevalue of mortgage-related se-curities had plunged. Profitssank 19 percent to $6.3 billion in2007, the first down year since2000.
Some analysts also wereworrying about another recentWachovia deal: last year’s $6.8
billion buyout of brokerageA.G. Edwards. They wonderedif the bank could retain topbrokers and clients.
A vocal opponent was BenEdwards III, the retired A.G.Edwards CEO, whose succes-sor forged the deal. In an inter-view, he said he’s heard a lot ofdissent within both compa-nies. “I think it was an ill-ad-vised thing from the get-go,”said Edwards.
Wachovia’s board expressedits displeasure by eliminatingbonuses for Thompson and hislieutenants. In January, Smithsaid management and theboard shared blame for theGolden West deal but told theObserver that he had confi-dence in Thompson and histeam.
In his letter to shareholdersin February, Thompson saidthe bank’s deals were on track,but he acknowledged the badtiming of the Golden West pur-chase. He reiterated a previousstatement that the bank’s divi-dend was safe.
Then came April’s stunningannouncement. The bank dis-closed a first-quarter loss of$393 million, cut its dividendby 41 percent and announced acostly cash infusion. Thomp-son said the move had becomenecessary because new datashowed an acceleration of loanlosses.
His credibility was gonewith investors.
Some ‘self-inflicted’ wounds
At the bank’s annual meet-ing April 22, shareholders
crowded an uptown hotel ball-room to call for Thompson’sresignation. He responded thathe was the right person to leada recovery. Smith again ex-pressed confidence in Thomp-son.
But a steady drip, drip, dripof miscues followed.
In a 12-day period, the bankagreed to a $144 million settle-ment over its ties to telemarke-ters, faced a report that it wasunder investigation for allegedmoney-laundering violations,disclosed an expected $1billioncharge over controversial leas-ing transactions and revealedan insurance loss that nearlydoubled its first-quarter redink.
On May 8, the week after theWachovia Championship, theboard voted to hand Thomp-son’s chairman title to Smith,who was then lead indepen-dent director. Thompson saidthe move let him focus on run-ning the company; analystssaid it could mean he was on ashort leash.
Four days later, Thompsonspoke at an investor confer-ence in New York. Normally,these sessions feature relaxedpresentations by CEOs high-lighting their successes.Thompson took a serious tone.He admitted Wachovia hadsome “self-inflicted” woundsand said the bank would hire a
third-party group to analyze itsrisk-management practices.
“My job is to address theproblem head-on, and that’sabsolutely what I intend to dowith 100 percent commit-ment,” he said.
For months, Thompson hadbeen working long hours andeschewing vacations, Harrissaid. Meanwhile, chairmanSmith was seeking counsel.
About a month ago, Smithcalled former Wachovia chair-man Bud Baker to get histhoughts on the company. Bak-er, who retired in 2003, said hedidn’t ask if the board was con-sidering a CEO change, but hetold Smith it was “a decisionthey would have to make,” add-ing: “At the end of the day, theboard works for the sharehold-ers and not management.”
Smith wouldn’t disclose de-tails on the board’s decision-making, but said there comesan “inflection” point in an or-ganization when new leader-ship can be an energizingforce. Those who know Smithsaid he is a strategic thinkerwho doesn’t make snap judg-ments.
Baker, who engineered theFirst Union-Wachovia mergerwith Thompson, said he hadno knowledge of the board’sworkings but wasn’t surprisedby the move. Baker has soldsome of his Wachovia sharesover time and plans to givemore away to charity, but henoted his family’s holdingshave lost half their value withthe stock’s plunge in the pasttwo years.
Thompson was “in a situa-tion where he made somemoves that didn’t work out,”Baker said. “Sometimes in lifethat happens. We all make de-cisions that don’t work out.”
To assist with his retirementagreement, Thompson enlist-ed the same lawyer who coun-seled Merrill Lynch CEO StanO’Neal on his exit. Thompsonentered the agreement June 1,the same day Wachovia’sboard met in New York to in-stall new leadership.
Search begins for new CEO
Early on Monday, Wachoviaannounced the startling news:Smith would become interim
CEO, while vice chairman BenJenkins would serve as interim
chief operatingofficer. The bankwould launch asearch for a newCEO, consideringinternal and ex-ternal candidates.Such a hunt couldtake three to four
months, a knowledgeable re-cruiter said.
The move saddened em-ployees who had knownThompson for years and raisedquestions about the bank’s fu-ture, including the possibilityof a takeover. Smith said Wa-chovia planned to remain inde-pendent and still had strongbusinesses.
Some analysts questionedwhether Smith was the rightperson to take charge, citingthe board’s approval of theGolden West acquisition. Wa-chovia’s shares fell more than15 percent last week to $20.13, alevel last seen in late 1994.
Thompson’s plans are un-clear. He’s required to stepdown as chairman of the Fi-nancial Services Forum be-cause he isn’t a sitting CEO.Other companies and charita-ble causes, including the Foun-dation for the Carolinas, ex-pect him to stay on theirboards. Easley said Thompsonwill have an array of options.He’d like to tap him for a stateboard.
Thompson received $1.45million in severance. He alsoleft with about $28 million inpension benefits, deferredcompensation and stock hold-
ings that havesince shed someof their value. Hisstock options arecurrently worth-less.
Hugh McCollJr., the formerBank of America
CEO and a friend, said hedoesn’t know what Thompsonwill do next but expects he willfare “quite well.”
“I think he’ll still be involvedin our city,” he said. “He’s a ve-ry important leader.” — STAFF
WRITER CHRISTINA REXRODE
CONTRIBUTED.
The swift fall of Wachovia’s Ken ThompsonTHOMPSON• from 1A
Samuelson
Easley
Crutchfield
OBSERVER FILE PHOTO
Then-CEO of Wachovia Bud Baker (left) jokes with First Union CEO Ken Thompson as they leavethe Wachovia shareholders meeting in Winston-Salem in 2001 after their proposed merger wonwide approval.
JEFF SINER – [email protected]
Ken Thompson signals that his drive is going to the left fromthe 13th tee box during the Wachovia Championship pro-am inApril at Quail Hollow Club in Charlotte.
Jenkins
McColl
DAVIE HINSHAW – STAFF PHOTO
Jenn Snyder holds a photo ofherself and Blake’s grand-mother Patty Davis, takenafter Davis learned the familywas being given a house.
THE GIFT OF GIVINGSTO R I ES O F H O P E & N E E D
Find out how to give, 2A
4-year-old Blake has noparents, but he has Jenn
SEE BLAKE, 2A
Boy’s plight brought aCharlotte woman totears – and compelledher to help in a big way.
By Fred Clasen-Kelly
Over the past 18 months, Jenn Snyderhas established a college fund, collectedfurniture – and even helped get a home –for the family of 4-year-old Blake Davis.
Snyder didn’t even know Blake untilshe saw him on television in June 2007.
The Ohio boy’s missing mother hadjust been found dead. The prime suspectwas his father.
“I was sobbing watching the pressconference,” said Snyder, 36, of Char-lotte. “I thought, ‘This little boy has nomom or dad.’ ”
She decided to help.Snyder has spent more than a year
collecting money and donations to helpBlake and his family in Akron, Ohio.
A trust fund she established – Blake’sBright Tomorrow – raises money for theboy’s college education. She is also try-ing to find someone willing to give thefamily a vehicle to replace their car,which she said often breaks down.
Her effort has already persuaded amortgage company to donate a fore-closed house to the family. Businesses
OBSERVER PHOTOS OF THE YEARCheck out highlights of our staff photographers’best work in The Big Picture, and see all 100 atwww.charlotteobserver.com/galleries. 17A
Is your 401(k) in danger?With companies looking to conserve cash duringthe recession, many are trimming contributionsto workers’ 401(k) retirement plans. 16A
5 fun and cheap tripsCooped up with the kids over the holidays?Check out these nearby museums. 1E
© 2008 The Charlotte ObserverVol. 139, No. 356
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Is now the time torefinance?MONEYWISE
Julius Peppers and the surging Panthersplay their biggestgame of the yearSPORTSIT’S ON!
Taylor Rose Moen, 6
Taylor is the daughter of Tom and BarrieMoen of Cornelius and is in first grade at J.V.Washam Elementary School. She used mark-ers to make her card. Taylor wants to be anartist and author when she grows up.
HOLIDAY CARDWINNER
We received more than 900 entries from children in theObserver’s seventh annual Holiday Card Contest. Each daythrough Christmas, we will publish one card on the frontpage. There were so many great cards that we’ll alsopublish more in Thursday’s Observer.
SEE MORE CARDSGo to www.charlotteobserver.com/holiday
By Steven Brown
At 6 a.m. every weekday, theradio beside Debbie Hains’ bedlets fly with classical musicfrom WDAV-FM. When sheheads off to work, she listens toWDAV in the car, too.
So when a friend urged herto make a donation, Hains did –for her first time.
“Since I’m getting some ben-efit from them, I should sup-port them,” said Hains ofHuntersville. “I thought it wasan important thing to do.”
Despite the nation’s eco-nomic woes, WDAV’s fall cam-paign attracted 360 new do-nors, out of 1,400 donors. Thatmay be the one good-news sto-ry to come from an autumnthat has been as scary for Char-lotte arts groups as it has beenfor anyone who sees jobs van-ish.
Just as groups were launch-
ing their seasons came the dayone arts leader calls “the cliff”:Sept. 29, when Wachovia an-nounced it would be bought bya healthier bank, and the daybox-office phones across Char-lotte stopped ringing. Eventhough ticket buyers haveroused somewhat in the mean-time, donors are the next bigunknown. So arts groups arelaboring to avoid the precipice.
“It’s like somebody haspulled a trap door,” says JamesMeena, general director of Op-era Carolina.
WDAV is the fortunate one:Its autumn drive raised$190,000 – a little short of its$200,000 goal, but not bad inmid-recession.
“I’m grateful and a little re-lieved,” general manager Ben-jamin Roe said.
There’s no telling whenRoe’s colleagues at othergroups will be able to share hissense of relief.
With the president-elect andothers predicting the nationaleconomy will get worse, MintMuseums executive director
Arts groups cutcosts to surviveeconomic storm
SEE FUNDRAISING, 6A
While there have been afew bright spots,year-end donations willbe critical to the future.
THE GOOD DEALTHAT WASN’T
Wachovia saw strength in its Golden West purchase, but the Californialoans undermined the Charlotte bank as the financial crisis erupted.
PHOTO ILLUSTRATION BY DAVID PUCKETT – [email protected]
A Charlotte institutioncrumbles: The 2006deal forged by GoldenWest’s Herb Sandler (left)and Ken Thompson was supposedto “generate superior long-term growth,” theWachovia CEO said.
By Rick Rothacker
In front of a ballroom full of N.C. bank-ers in January 2006, Wachovia chiefexecutive Ken Thompson warned of thedangers of “toxic” home loans.
A problem with so-called option ad-justable-rate mortgages, he told thegroup, was that homeowners can end upowing more at the end of the month thanthe beginning, which can be a “tough sit-uation” for customers and lenders.
“I have literally been amazed at theterms offered by some mortgage lenders,thankfully not at Wachovia and thankful-ly not so much in North Carolina,” hesaid.
Four months later in May 2006,Thompson took a $24 billion plunge into
the mortgage business by buying Oak-land, Calif.-based Golden West Financial.Its specialty? The same loans he had cau-tioned against: option ARMs.
Wachovia, a brand known for conser-vative lending, had changed course andforged its biggest deal ever. Two and ahalf years later, the purchase has played acentral role in the Charlotte bank’s nearcollapse and its planned sale to San Fran-cisco-based Wells Fargo. Shareholdersvote Tuesday on the takeover.
In buying Golden West, Thompsonand his board exposed the bank to a non-traditional lender with 60 percent of itsmortgages in California even as expertswarned of a housing bubble and the per-
ils of option ARMs. The purchase left thebank especially vulnerable in the globalfinancial crisis that ensued. Now the ac-quisition is a key chapter in a tragic talethat has cost investors billions andthreatened thousands of jobs.
So why did Thompson do it? The pur-chase fit his goals of establishing a majorpresence in California and building hismortgage business. His competitorswere reaping profits from the housingfrenzy. And he became comfortable withGolden West’s lending tactics and ster-ling track record.
But the deal seemed out of character. Itcame together in a matter of days. Some
SEE WACHOVIA , 10A
By Eli Saslow
Washington Post
WASHINGTON — The job re-quires him to work unnoticed,even in plain view, so Jon Fav-reau settles into awooden chair ata busy Starbucksjust blocks fromthe White House.Deadline looms,and he needs towrite at least halfa page by the endof the day. As the espresso ma-chines whir, Favreau opens hislaptop, calls up a document ti-tled “rough draft of inaugural”and goes to work on the mostanticipated speech of BarackObama’s life.
During the campaign, the27-year-old helped write andedit some of the most memora-ble speeches of any recentpresidential candidate. WhenObama moves to the WhiteHouse next month, Favreauwill join his staff as one of theyoungest chief speechwriters.He helps shape almost everyword Obama says, yet the twomen have formed a concert soharmonized that Favreau’sown voice disappears.
Obama’s word manhas the world waitingFrom a laptop in a coffee shop, a 27-year-oldcrafts the next president’s inauguration speech.
INAUGURATION 2009 GUIDE
Details on the ceremony.charlotteobserver.com/inauguration
Favreau
SEE SPEECHWRITER, 4A
10A Sunday, December 21, 2008 ••• charlotteobserver.com • The Charlotte Observer
key executives weren’t consulted.The two cultures collided at a bankknown for smooth mergers. Andperhaps most remarkably, Wachoviakept pushing Golden West’s optionARMs, even as other lenders backedaway.
Had Wachovia executives passedon the deal, the company might stillhave a future on its own. But oncethey placed the bet on Golden West,it’s debatable whether they couldhave escaped the financial melt-down that would follow. “If you lookback on it, who could have predictedthat?” asks former Wachovia direc-tor Robert Brown, who voted to ap-prove the deal.
In the aftermath, federal officialsare investigating the sale, and share-holders have filed lawsuits againstWachovia and company officials.
Thompson, 58, declined to com-ment for this story. He was dismissedin June. In a statement, Wachoviasaid the deal was an attractive fitwhen it was announced and “can on-ly be evaluated fairly based on cir-cumstances existing at that time.”
Thompson a selective deal maker
Thompson took over then-FirstUnion in 2000 with the bank suffer-ing from fast-paced deals and plung-ing profits.
Well-liked throughout the ranks,the company veteran from RockyMount launched a massive restruc-turing, presided over a smoothmerger with Winston-Salem’s Wa-chovia in 2001 and preached a devo-tion to customer service.
He also became known as a selec-tive deal maker. In 2003, he passedon FleetBoston Financial. Two yearslater, he turned down credit card gi-ant MBNA. In both cases, he didn’tbudge on price and resisted takingon too much risk for a bank of Wa-chovia’s size. Its bigger crosstown ri-val, Bank of America, later swoopedin to score both $35 billion-plusdeals.
Thompson, however, had de-clared his desire to expand his retailbanking presence into California.Flush with deposits, he also wantedto make more loans to consumers.
In 2005, banks were making bigprofits in a roaring housing market.Average U.S. home prices increasednearly 13 percent, climbing at a near-record pace. In California, homeprices were up more than 117 percentover five years.
But late in the year, loan delin-quencies and foreclosures edged up.Economists warned of the possiblerisks of a slowing housing boom.Regulators also began increasingscrutiny of nontraditional loans.
In September 2005, Thompsonshowed a tolerance for more risk inbuying two small California lendersthat made some subprime loans toborrowers with weaker credit. Atthat time, Wachovia was largelybuilding its traditional mortgagebusiness by hiring loan officers andinvesting in technology. A big acqui-sition would be a faster way to grow.
In late April 2006, Thompsonlearned Golden West might be forsale. The tip came from a chance en-counter between an investmentbanker working for Golden Westand an attorney who advised Wa-chovia. A few days later, Thompsonand his chief financial officer, TomWurtz, were on a plane for Califor-nia.
Acquisition takes shape
In more than four decades at the
helm of Golden West, husband-and-wife co-CEOs Herb and Marion San-dler had turned a savings and loanwith a few locations into a top 20mortgage lender with 285 branches.
Along the way, the company washeralded for posting double-digitprofit growth year after year. Butwith an aging leadership team and adependency on just one type ofmortgage, Golden West began to ex-plore its alternatives, Herb Sandlersaid in an interview.
On Tuesday May 2, 2006, Thomp-son and Wurtz met with the San-dlers and other top Golden West ex-ecutives at a downtown San Francis-co hotel. Herb Sandler, then in hismid-70s, says he and his team had in-vestigated Wachovia and heard goodthings about Thompson and how hehandled mergers.
Thompson and Wurtz seemed toknow a lot about the company’sbusiness already, Sandler said. It mayhave helped that Wurtz, with theN.C. bank since the mid-1990s, previ-ously worked for the Office of ThriftSupervision, which regulated Gold-en West. At the agency, the lenderwas seen as a model outfit.
Thompson grew comfortablewith the lender’s nontraditionalloans, later praising its “conserva-tive” approach.
Its option ARMs, known as Pick-A-Payment loans, gave customersmonthly payment options, includinga minimum payment that didn’t cov-er all of the interest owed. Choosingthat option caused the loan balanceto grow, instead of shrink, a worryfor regulators and consumer advo-cates.
The lender had pioneered its op-tion ARM in the 1980s, but faced in-creasing competition from the likesof Countrywide Financial andWashington Mutual. Golden Westboasted numerous safeguards, in-cluding a cap on how much the mini-mum payment could increase eachmonth. Unlike most rivals, it held on-to its loans, a major incentive tomake good mortgages.
And Golden West had a record ofvirtually no loan losses – even indownturns.
The meeting, which included no-frills sandwiches for lunch, conclud-ed with a deal well under way. Bothsides moved into investigating eachother’s operations, a process knownas due diligence.
Thompson was back in Charlottethe next day to play golf with tourstar Vijay Singh in the WachoviaChampionship pro-am event. In thecoming days, Thompson juggled histournament hosting duties withhigh-stakes deal making.
‘It was very different’
During the rest of the week, a Wa-chovia team including chief risk offi-cer Don Truslow and Ben Jenkins,head of the general banking opera-tions, visited Golden West sites inCalifornia and Texas.
Top Wachovia mortgage execu-tives were notified the purchase wasin the works but they weren’t drawndeeply into the due diligence. Thatcontrasted with earlier deals investi-gated by the bank. Only a fewmonths earlier, for example, mort-gage executives helped vet a possibleinvestment in mortgage and autolender GMAC and recommendedagainst the move. Thompson didn’tdo the deal.
Some technology executives whohad helped check out past acquisi-tions weren’t clued in. “From every-thing I saw it was very different,” oneformer executive said of GoldenWest. “It was a done deal. Make itwork.”
Wachovia reviewed GoldenWest’s loan portfolio, but to whatlevel of detail is unclear. Dozenswere involved in the entire due dili-gence process.
Wachovia executives were im-pressed with Golden West’s low loanlosses during a major Californiadownturn in the early 1990s, whenhousing prices fell 20 percent andunemployment hit 10 percent.
Thompson and other executivesalso took comfort in the relativelysmall size of Golden West’s loans –less than $250,000 on average. Thatstemmed from a strategy to avoid thepotentially more volatile high-end ofthe housing market. In more expen-sive California, the lender’s averageloan size was about $338,000.
The focus on smaller size loans“gives you incredible confidence”partly because these mortgageswould get hit less than larger ones“in a difficult environment,”Thompson would say days later.
During his tenure as CEO,Thompson was known for a consen-sus-style approach to management.In an August 2006 interview, he saidhe was hands-on when needed butalso gave his executives room tolead. Asked if he had any weakness-es, he said he needed a “really goodCFO, and I’ve got one, because I’mnot a numbers guy.”
Three of the top executives in-volved in the deal – Wurtz, Truslow
and Jenkins – declined to commentfor this story.
Bank analyst Gary Townsend,now with Maryland-based Hill-Townsend Capital, said he met withWurtz in August 2006 and the CFOindicated that he had overcome ini-tial reservations about the GoldenWest deal after meeting with theSandlers.
As chief risk officer, Truslow’srole was to help evaluate the loanportfolio. Seen as a quiet leader, hejoined the bank in 2001 with the Wa-chovia merger. General bankingchief Jenkins, who had come upthrough the ranks with Thompson,was already leading an effort to buildnew branches in California.
A voice absent from Thompson’sexecutive suite was longtime CFOBob Kelly, who had departed aboutthree months before the deal to be-come CEO of what is now Bank ofNew York Mellon. Kelly was knownfor speaking his mind and for some-times offering contrarian opinions,several current and former execu-tives said. In hindsight, they wonderwhether he would have questionedthe deal.
“He’d say, ‘Let’s step back and lookat this a different way,’ ” says a for-mer executive. Kelly declined tocomment.
Wall Street reacts
The time it takes to pull together abig bank deal can vary widely.Thompson spent months weighingthe 2001 First Union-Wachoviamerger. Bank of America looked ov-er MBNA in a little more than a weekin 2005. In the current financial cri-sis, companies are being cobbled to-gether in weekends.
The Golden West deal, from firstcontact to announcement, took 11days, with the formal due diligencecovering no more than six days.
With speed comes more risk, saidTownsend, the analyst, whoemerged as a critic of the deal. “Ithink Ken Thompson wanted to buyGolden West,” he said. “Why they
pulled the trigger so quickly, I don’tknow. I don’t think there was anoth-er bidder.”
It’s been reported that Citigroupand HSBC passed on Golden Westbefore its talks with Wachovia. Butno other bidder ever publiclystepped forward.
On the morning of Sunday, May 7,2006, Thompson and his team madea final presentation to the Wachoviaboard, including an assessment ofcredit quality and risk management.
The directors, who met at leastthree times during the due diligenceperiod, had an extensive discussion,says Brown, the retired director.“The fact of the matter,” the HighPoint public relations specialist says,“is that when the discussion tookplace – go back and check the factbook – Golden West had one of thelowest loan default rates in the coun-try.”
He also notes that a “major con-sideration for us was that they had alot of branches in California and theWest.”
The directors unanimously ap-proved the acquisition. The nextmorning at an investor presentationin New York, Thompson told ana-lysts he was “thrilled” with the deal.Sandler called it “a perfect culturalfit.”
Asked about the timing, Sandlerdismissed TV pundits he’d heardthat morning criticizing the optionARM and the possibility of a real es-tate crisis. “That is a bunch of gar-bage,” he said.
Investors balked. In the first day oftrading, Wachovia’s stock pricedropped nearly 7 percent. As thebank’s shares slipped further thatweek, Wurtz held an unusual follow-up conference call with analysts.
One asked about Golden West’saverage loan size, wondering wheth-er this implied its customers wereless creditworthy. Wurtz said thatwasn’t necessarily true. He pointedto the smaller loans as a sign of Gold-en West’s lending discipline.
Another question was whetherthe Sandlers sold at the top of themarket. “They have said very specif-ically that that is not the motivationfor their sale,” Wurtz said, “ … and Ibelieve them.”
Culture clashes emerge
Shortly after the acquisition’s an-nouncement, more than two dozenexecutives from both sides gatheredat Wachovia’s uptown headquarterscomplex. It was a get-to-know-yousession.
Sitting in on the meeting was JimJudd, a top Golden West executivewho had long piloted the lender’smortgage machine with a no-non-sense, even combative managementstyle. Now, in his late 60s, he wouldsoon be charged with leading thecombined mortgage unit – eventhough his company was the one be-ing bought.
As a Wachovia mortgage execu-tive explained the bank’s customer
’06 ’07 ’08
$59.85April 28
$ 5.66
Wachovia share price chart
Friday
$55.42May 8
Wachovia stock drops nearly 7 percent day after Golden West deal announced.
$55.78Oct. 2
Wachovia closes Golden West purchase on Sunday, Oct. 1.
$55.65Jan. 23
Wachovia posts record annual profit of $7.8 billion for 2006.
High point
$25.55April 14
$6.21Oct. 3
Wachovia announces its first quarterly loss in seven years.
Wells Fargo trumps Citi deal.
$23.40June 2
CEO Ken Thompson dismissed.$60
10
30
The good deal that wasn’t:Tracing Wachovia’s demiseWACHOVIA • from 1A
OBSERVER FILE PHOTO
In May 2006, Herb Sandler, co-CEO of Golden West, shares a light moment at a meeting two days after Wachovia announced its purchase of the Californiathrift. From right: his wife, co-CEO Marion Sandler, and Wachovia executives Ben Jenkins and Bob McGee.
CHUCK BURTON – ASSOCIATED PRESS PHOTOWachovia CEO Ken Thompson (right) returned to Charlotte one day aftermeeting with Golden West officials, to play with Vijay Singh during theWachovia Championship’s pro-am in 2006.
How we did this storyThe Observer interviewed
more than two dozen current andformer Wachovia and GoldenWest executives, employees andothers to produce this account.The paper also reviewed securi-ties filings and court documentsand conference call transcripts.Most of the people interviewedwould speak only on the condi-tion that their names not beused, often citing the need toprotect their jobs or benefitsafter departing the company. Thepaper made repeated efforts totalk with top executives, whodeclined to comment individuallyor through the company.
To contact reporter Rick Roth-acker, e-mail [email protected] or call (704)358-5235.
SEE WACHOVIA , 11A
The Charlotte Observer • charlotteobserver.com ••• Sunday, December 21, 2008 11A
satisfaction surveys, Judd ques-tioned how the data was used. TheWachovia executive said the surveyshelped gauge employee perfor-mance and calculate incentive pay.
Judd dismissed the effort as stu-pid, recall sources at the meeting.
Wachovia executives wereshocked by the remark, whichseemed to disparage Wachovia’s in-grained focus on customer service.The summit, in which Thompsonmade an appearance, would be thebeginning of a culture clash thatwould embroil the combined mort-gage unit. Judd could not be reachedfor this story.
The companies were different inmany ways. Wachovia’s mortgageunit, part of a giant financial servicescompany, pitched a variety of tradi-tional mortgage products mostly toits banking customers. Golden Westlargely offered its signature product,option ARMs.
Wachovia mortgage executivesdidn’t see Golden West counterpartsas true mortgage bankers, skilled inmaking a variety of loans and pack-aging them into securities for inves-tors. Instead, they saw them as slicksalesmen who used less than sophis-ticated tactics. They were aghast atproposals to pitch loans at flea mar-kets and shopping malls.
Golden West executives werefrustrated by Wachovia’s polite, de-liberative culture. At Golden West,they prided themselves on walkingout of boring meetings and grillingeach other before making decisions.They were bewildered by Wacho-via’s complex management struc-ture. They bemoaned mind-numb-ing conference calls in which scoresof people dialed in and no decisionswere made.
At Golden West’s headquarters inOakland during a regular visit, San-dler met with Thompson and out-lined some of his concerns, rangingfrom management structure to em-ployee incentive pay.
Thompson was a “consummategentleman,” but Sandler says hethinks the Wachovia CEO was a littleangry. “Like, ‘Who am I to be talkingto him like that?’ ” Sandler says. “Myobligation was to make Wachovia abetter company.”
A source familiar with the situa-tion said Thompson listened to San-dler’s concerns over time and actedon some.
After the purchase closed in Octo-ber 2006, Sandler, a major GoldenWest shareholder, said he was disap-pointed that Wachovia rarely askedfor help.
Meanwhile, more than a half doz-en of Wachovia’s top mortgage exec-utives soon left the company, eitheruneasy with the unit’s direction orsqueezed out.
Pick-A-Payment loans continue
In summer 2007, Wachovianamed one of its own to run themortgage unit in anticipation ofJudd’s retirement at the end of thatyear.
David Pope was a well-respectedexecutive with a diplomat’s touch.He had overseen some mortgagefunctions in the past but was knownmore for his experience in retail andbusiness banking.
While he might be able to easetensions between the warring fac-tions, some questioned whetherPope was the right person to navi-gate what had become one of theworst housing market collapses inhistory. “Do you want a nice guy ordo you want someone who knowsthe industry and can get you throughthis environment?” one former Wa-chovia executive says.
The change in leadership didn’thalt Wachovia’s sale of Pick-A-Pay-ment loans. Two of Pope’s top depu-ties were from Golden West andbacked the product.
By early 2008, the subprime mort-gage business had collapsed, andnow investors were losing their ap-petite for other nontraditional loans.Rivals such as Bank of America andWashington Mutual were abandon-ing option ARMs or tightening stan-dards. Wachovia was diving in deep-er.
Golden West specialized in sellingPick-A-Payment loans mostlythrough outside brokers, a type ofsales force that drew criticism forpumping out mortgages with littleregard to their suitability for borrow-ers. Now, in addition to these bro-kers, the goal was to sell the loansthrough Wachovia’s more than 3,000branches coast to coast.
“We thought it was a good productat the time the decision was made tomerge with Golden West,” Pope saidin a February 2008 interview. “Wethink it’s a good product today. Wethink it will be a good product in thefuture.” He declined to comment forthis story.
As the housing crisis worsenedearly this year, Wachovia loan offi-cers told the Observer their jobswere threatened for not sellingenough of the loans, which some feltweren’t appropriate for most cus-tomers. Executives who came fromGolden West called the loan officerswhiners who didn’t understand theproduct.
Both sides also sparred over un-derwriting standards. Wachovia re-
lied heavily on credit scores. GoldenWest analyzed a borrower’s credithistory on its own, but didn’t alwaysrequire full documentation of in-come.
Pope took steps to better mergeoperations and to craft a long-termmortgage strategy, but the environ-ment inside the unit was worsening,employees said. Initially, Pope’s ap-pointment appeared to be a sign Wa-chovia was reclaiming the unit, a for-mer mortgage employee says, “butthere didn’t seem to be any action.”
California a liability
In late 2007, Wachovia beganpointing to “several pockets” in Cali-fornia as the main source of its risingloan delinquencies.
California’s Inland Empire andCentral Valley regions, where Gold-en West had about 17 percent of all ofits loans, were suffering steep de-clines in housing prices. Thesedrops would exceed 40 percent insome areas, topping national rank-ings.
Wachovia would later say GoldenWest’s concentration in these mar-kets was an unintended conse-quence of its strategy to make loanson moderately priced homes. Ashome values skyrocketed in Califor-nia, Golden West was priced out ofexpensive coastal areas and mademore loans in the state’s interior.
Now as home prices fell in theseonce fast-growing areas, foreclo-sures climbed. Blue-collar workersdefaulted as construction-relatedjobs dried up. Commuters soured ondistant neighborhoods as gas pricesrose, feeding the downward spiral inhome prices. Some borrowersstopped making mortgage paymentswhen the equity in their homes van-ished, a new behavior that befuddledbankers.
Once seen as a major attraction,Golden West’s presence in Califor-nia was becoming a liability.
In early 2008, Wachovia execu-tives began acknowledging the badtiming of the deal. But they keptechoing Golden West’s faith in theportfolio.
In a January conference call re-porting fourth-quarter earnings,Thompson pointed to GoldenWest’s minuscule losses in the 1994California housing slump. Even if itgot worse, he said, “our Pick-a-Payportfolio will generate very mean-ingful bottom line profits in 2008 –and I do not believe that investorsgrasp that fact today.”
The picture grew grimmer in Feb-ruary and March as Wachovia’s riskmanagers, led by Truslow, adoptednew modeling techniques for pre-dicting defaults. Wachovia now ex-pected cumulative losses of 7.5 per-
cent in the $121 billion portfolio, incontrast to Golden West’s history ofvirtually none. That meant the bankhad to start setting aside much moremoney to cover current and futurePick-A-Payment losses.
That contributed to stunningnews April 14. Wachovia revealed a$393 million first-quarter loss, a cutto the lucrative shareholder divi-dend and plans to raise capital.Thompson was contrite: “I knowthese actions are not without costs,and I wish they were not necessary,but they are.”
Along with the earnings an-nouncement, Wachovia disclosedsome potentially troubling statisticsabout the Pick-A-Payment portfolio.In 2005 and 2006, at the height of thehousing boom, Golden West hadmade more loans to borrowers withlower credit scores than in the past.Also, the amount of deferred interestin the portfolio – the result of bor-rowers choosing the minimum pay-ment – had climbed to $3.5 billion, or3 percent of the loan book, up from$449 million, or 0.39 percent, in 2005.
In an interview the day of theearnings report, Thompson said thecompany was analyzing its mortgagestrategy but he expected the bank tooffer an array of products, includingPick-A-Payment loans. Around then,Wachovia began tightening Pick-A-Payment lending standards, requir-ing minimum credit scores and in-come verification.
Cascade of problems
A week later on April 22 at Wa-chovia’s annual meeting, investors,who had seen their shares fall byabout half since the Golden Westdeal was announced, called forThompson’s job. Soon after, Wacho-via disclosed an embarrassing cas-cade of unrelated problems, includ-ing a settlement of up to $144 millionover ties to telemarketers whoscammed its elderly customers.
Thompson was losing his hold onthe company. In May, lead directorLanty Smith, who had backed him atthe shareholder meeting, assumedThompson’s chairman title. In an ef-fort to bring in outside help, Thomp-son contacted former Bank of Amer-ica CFO Al de Molina about a pos-sible role. Thompson also workedon changes to the bank’s finance andrisk management structure. Hedidn’t get the chance to test his plans.
On Thursday May 29, Smithcalled him into his 40th-floor office.Thompson’s more than three-de-cade career at the company was over.He later reviewed the language inthe June 2 news release. He wanted itclear that he had been asked to stepdown, stressing, “I didn’t throw inthe towel.”
Smith, who took over as interimCEO, attributed the move to a seriesof missteps, not just one incident. Hebegan the search for Thompson’ssuccessor immediately, but the vacu-um in the corner office rattled inves-tors and earned the board criticismfor not having a ready replacement.Smith declined to comment for thisstory.
In June, Wachovia stopped mak-ing Pick-A-Payment loans.
Regulators step in
The following month, Smithtapped a new CEO: Bob Steel, a U.S.Treasury official and friend from theDuke University board of trustees.Steel began crafting a recovery strat-egy, building on some of the work al-ready underway.
For the mortgage unit – where Wa-chovia now said Pick-A-Paymentlosses would reach 12 percent – heannounced plans to refinance exist-ing customers into traditional loansand to slash mortgage jobs.
Soon after, CFO Wurtz and risk of-ficer Truslow announced their de-partures. In a meeting with analystsfrom research firm CreditSights,they admitted Wachovia was caughtoff guard by a steep decline in homevalues. They said the company’s pol-icy of making mid-sized loans back-fired by leading to the concentrationof mortgages in California’s InlandEmpire and Central Valley regions.
They also acknowledged anotherweakness in the Pick-A-Paymentproduct:
“It seems that borrowers whochoose a mortgage with the optionof lower minimum payments may infact be indicating to the lender thatthere is more likelihood that theywill not have the resources to coverthe (full) payment,” the analystswrote.
In addition, they wrote, “Wacho-via was frank that it had missed anopportunity” to aggressively “selldown” the portfolio in early 2007when the loans were still attractiveto investors.
By mid-September, Steel’s plansbecame moot. The failure of invest-ment bank Lehman Brothers roaredthrough the credit markets. TheSept. 25 collapse of Washington Mu-tual, a major option ARM lender,ratcheted up investor anxiety aboutWachovia’s loans. A federal bailoutplan intended to calm roiling mar-kets stalled in Congress.
In a frenzied last weekend of Sep-tember, federal regulators orderedWachovia to sell most of its opera-tions to New York-based Citigroup.Days later, Wells Fargo trumped itwith a rival offer. In November, Steelsaid the bank ran out of time to dealwith its troubled loans amid historic
economic times.As Sandler sees it, Golden West
has been unfairly blamed for Wacho-via’s myriad problems, and he sus-pects the bank has overestimatedpotential losses in the portfolio. Heattributes the rising delinquencies toplunging housing prices and GoldenWest’s concentration in Californiamarkets – not the nature of its prod-uct.
“I plead guilty to being a residen-tial lender,” he says. “This has noth-ing to do with the quality of the lend-ing.”
He acknowledges the lender maynot have flagged problems in the In-land Empire and Central Valley soonenough. In the past, Golden Westhad identified overheated marketssuch as Las Vegas and pulled back.
“Maybe, you could say, ‘Gee, weshouldn’t have made loans in certainparts of California,’ ” Sandler says.“We used to pride ourselves in get-ting out. We probably were not asquick in Inland Empire and Valleyareas.”
Last month, the U.S. attorney inSan Francisco said the Justice De-partment and the Securities and Ex-change Commission were investi-gating Golden West’s lending prac-tices and whether it misrepresentedits portfolio to Wachovia during thesale. Wachovia faces lawsuits byshareholders over the deal and fromcustomers who allege improperlending practices.
The Wells deal, pending share-holder approval, is expected to closeby year’s end.
Wells Fargo has said it plans tophase out the Golden West portfolio.The bank said efforts to work withstruggling borrowers show promise,but it’s still projecting losses to reach$36 billion – or 29 percent of theportfolio. That’s nearly four timesWachovia’s initial 7.5 percent esti-mate in April.
“As we’ve always said,” Wells Far-go CEO John Stumpf told analyststhis month, “we do not like the op-tion ARM product.”— RESEARCHERS MARION PAYNTER AND MARIA
DAVID CONTRIBUTED.
WACHOVIA • from 10A
GARY O’BRIEN – [email protected]
Wachovia CEO Ken Thompson leaves the annual shareholders meeting in April in Charlotte. Investors had seen the value of their shares fall by about halfsince the Golden West deal. “If I had made a mistake like this I’d be out of a job,” said investor Tim Vorick, a retired small-business man from Tampa, Fla.
After the fall• Ken Thompson: The formerWachovia CEO, 58, left with sev-erance of $1.45 million and stockawards valued at $7.25 million.The stock has since fallen bymore thanthree-fourths.For 2006 and2007, Thomp-son received$7.3 million insalary andbonus.
• The lieuten-ants: Chieffinancial officerTom Wurtz, 46,and chief riskofficer DonTruslow, 50,have left. Gen-eral bank headBen Jenkins, 64, will retire afterthe Wells Fargo sale is complete.Mortgage head David Pope, 48,will stay with Wells Fargo in an“executive transition role.”
• Bob Steel: The current Wacho-via CEO, 57, will depart after theWells Fargo sale.
• Herb and Marion Sandler: Theformer Golden West co-CEOs runa foundation that benefits asth-ma research, investigative jour-nalism and other causes. Theirstake in Golden West was initiallyvalued at about $2.6 billion un-der the merger proposal. HerbSandler said they put $1.3 billioninto their foundation, largely incash. The couple still own Wa-chovia stock personally. He won’tsay how much.
JOHN D. SIMMONS – [email protected]
Wachovia CEO Bob Steel (from left), Wells Fargo CEO John Stumpf and Wachovia general bank head Ben Jenkinsmet with employees at the bank’s uptown headquarters on Oct. 15. Stumpf told workers that his job is “to help allof you stay with the company,” but added, “obviously, no commitments, no promises.”
Truslow
Wurtz