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SUNDAYSUNDAY •• DECEMBERDECEMBER 21, 21, 2008 2008 •• $1.50$1.50 charlotteobserver.com Price varies by county C D E F ••• + Arts groups cut costs to survive THE GOOD DEAL economic storm While there have been a ing their seasons came the day one arts leader calls “the cliff”: THAT WASN’T few bright spots, Sept. 29, when an- Wachovia saw strength in its Golden West purchase, but the California year-end donations will nounced it would be bought by be critical to the future. a healthier , and the day loans undermined the Charlotte bank as the financial crisis erupted. box-office phones across Char- By Steven Brown lotte stopped ringing. Even [email protected] though ticket buyers have At 6 a.m. every weekday, the roused somewhat in the mean- radio beside Debbie Hains’ bed time, donors are the next big lets fly with classical music unknown. So arts groups are from WDAV-FM. When she laboring to avoid the precipice. heads off to work, she listens to “It’s like somebody has WDAV in the car, too. pulled a trap door,” says James So when a friend urged her Meena, general director of Op- to make a donation, Hains did – era Carolina. for her first time. WDAV is the fortunate one: “Since I’m getting some ben- Its autumn drive raised efit from them, I should sup- $190,000 – a little short of its port them,” said Hains of $200,000 goal, but not bad in Huntersville. “I thought it was mid-recession. an important thing to do.” “I’m grateful and a little re- Despite the nation’s eco- lieved,” general manager Ben- nomic woes, WDAV’s fall cam- jamin Roe said. paign attracted 360 new do- There’s no telling when nors, out of 1,400 donors. That Roe’s colleagues at other may be the one good-news sto- groups will be able to share his ry to come from an autumn sense of relief. that has been as scary for Char- With the president-elect and lotte arts groups as it has been others predicting the national for anyone who sees jobs van- economy will get worse, Mint ish. Museums executive director Just as groups were launch- SEE FUNDRAISING, 6A

A Charlotte institution crumbles: The 2006 deal forged by Golden Obama’s word man West’s Herb Sandler (left) and Ken Thompson was supposed to “generate superior long-term growth,” the has the world waiting Wachovia CEO said. From a laptop in a coffee shop, a 27-year-old By Rick Rothacker crafts the next president’s inauguration speech. [email protected] In front of a ballroom full of N.C. bank- the mortgage business by buying Oak- ils of option ARMs. The purchase left the By Eli Saslow During the campaign, the ers in January 2006, Wachovia chief land, Calif.-based . bank especially vulnerable in the global Washington Post 27-year-old helped write and executive Ken Thompson warned of the Its specialty? The same loans he had cau- financial crisis that ensued. Now the ac- WASHINGTON — The job re- edit some of the most memora- dangers of “toxic” home loans. tioned against: option ARMs. quisition is a key chapter in a tragic tale quires him to work unnoticed, ble speeches of any recent A problem with so-called option ad- Wachovia, a brand known for conser- that has cost investors billions and even in plain view, so Jon Fav- presidential candidate. When justable-rate mortgages, he told the vative lending, had changed course and threatened thousands of jobs. reau settles into a Obama moves to the White group, was that homeowners can end up forged its biggest deal ever. Two and a So why did Thompson do it? The pur- wooden chair at House next month, Favreau owing more at the end of the month than half years later, the purchase has played a chase fit his goals of establishing a major a busy Starbucks will join his staff as one of the the beginning, which can be a “tough sit- central role in the Charlotte bank’s near presence in California and building his just blocks from youngest chief speechwriters. uation” for customers and lenders. collapse and its planned sale to San Fran- mortgage business. His competitors the White House. He helps shape almost every “I have literally been amazed at the cisco-based . Shareholders were reaping profits from the housing Deadline looms, word Obama says, yet the two terms offered by some mortgage lenders, vote Tuesday on the takeover. frenzy. And he became comfortable with and he needs to men have formed a concert so thankfully not at Wachovia and thankful- In buying Golden West, Thompson Golden West’s lending tactics and ster- write at least half harmonized that Favreau’s Favreau ly not so much in ,” he and his board exposed the bank to a non- ling track record. a page by the end own voice disappears. said. traditional lender with 60 percent of its But the deal seemed out of character. It of the day. As the espresso ma- SEE SPEECHWRITER, 4A Four months later in May 2006, mortgages in California even as experts came together in a matter of days. Some chines whir, Favreau opens his Thompson took a $24 billion plunge into warned of a housing bubble and the per- laptop, calls up a document ti- INAUGURATION SEE WACHOVIA , 10A tled “rough draft of inaugural” 2009 GUIDE and goes to work on the most Details on the ceremony. anticipated speech of Barack charlotteobserver.com/ Obama’s life. inauguration

PHOTO ILLUSTRATION BY DAVID PUCKETT – [email protected]

THE GIFT OF GIVING HOLIDAY CARD STORIES OF HOPE & NEED WINNER Find out how to give, 2A 4-year-old Blake has no OBSERVER PHOTOS OF THE YEAR parents, but he has Jenn Check out highlights of our staff photographers’ By Fred Clasen-Kelly best work in The Big Picture, and see all 100 at Boy’s plight brought a Charlotte woman to [email protected] www.charlotteobserver.com/galleries. 17A Over the past 18 months, Jenn Snyder tears – and compelled has established a college fund, collected Is your 401(k) in danger? her to help in a big way. furniture – and even helped get a home – With companies looking to conserve cash during for the family of 4-year-old Blake Davis. the recession, many are trimming contributions Snyder didn’t even know Blake until she saw him on television in June 2007. to workers’ 401(k) retirement plans. 16A The Ohio boy’s missing mother had just been found dead. The prime suspect 5 fun and cheap trips was his father. Cooped up with the kids over the holidays? “I was sobbing watching the press We received more than 900 entries from children in the Check out these nearby museums. 1E conference,” said Snyder, 36, of Char- Observer’s seventh annual Holiday Card Contest. Each day lotte. “I thought, ‘This little boy has no through Christmas, we will publish one card on the front mom or dad.’ ” page. There were so many great cards that we’ll also She decided to help. publish more in Thursday’s Observer. Crossword ...... 4E Snyder has spent more than a year o o Books ...... 5E collecting money and donations to help Taylor Rose Moen, 6 53 25 Celebrations...... 8E Blake and his family in Akron, Ohio. Classified ...... 1F A trust fund she established – Blake’s Rain, then clearing: Chance of Taylor is the daughter of Tom and Barrie Editorial ...... 24A Bright Tomorrow – raises money for the sun in the afternoon. 16C Horoscope...... 4E Moen of Cornelius and is in first grade at J.V. Movies...... 6E boy’s college education. She is also try- Washam Elementary School. She used mark- Obituaries...... 8B ing to find someone willing to give the ers to make her card. Taylor wants to be an Sports ...... 1C DAVIE HINSHAW – STAFF PHOTO family a vehicle to replace their car, artist and author when she grows up. Travel...... 1I Jenn Snyder holds a photo of which she said often breaks down. + © 2008 The Charlotte Observer Vol. 139, No. 356 Delivery herself and Blake’s grand- Her effort has already persuaded a Assistance or to mother Patty Davis, taken mortgage company to donate a fore- SEE MORE CARDS Subscribe after Davis learned the family closed house to the family. Businesses Go to www.charlotteobserver.com/holiday ...... 800-532-5350 was being given a house. SEE BLAKE, 2A 10A Sunday, December 21, 2008 ••• charlotteobserver.com • The Charlotte Observer

’06 Wachovia share price chart ’07 ’08 Wachovia announces its first quarterly loss in seven years. $25.55 $60 CEO Ken Thompson dismissed. $59.85 April 14 $55.42 Wachovia stock drops April 28 $55.65 Wachovia posts record $23.40 $6.21 nearly 7 percent day $55.78 Wachovia closes 30 High point May 8 Jan. 23 annual profit of $7.8 June 2 Oct. 3 after Golden West Oct. 2 Golden West billion for 2006. deal announced. purchase on Wells Fargo Sunday, Oct. 1. trumps Citi deal. 10

The good deal that wasn’t: Friday $ 5.66 Tracing Wachovia’s demise WACHOVIA • from 1A key executives weren’t consulted. The two cultures collided at a bank known for smooth mergers. And perhaps most remarkably, Wachovia kept pushing Golden West’s option ARMs, even as other lenders backed away. Had Wachovia executives passed on the deal, the company might still have a future on its own. But once they placed the bet on Golden West, it’s debatable whether they could have escaped the financial melt- down that would follow. “If you look back on it, who could have predicted that?” asks former Wachovia direc- tor Robert Brown, who voted to ap- prove the deal. In the aftermath, federal officials are investigating the sale, and share- holders have filed lawsuits against Wachovia and company officials. Thompson, 58, declined to com- ment for this story. He was dismissed in June. In a statement, Wachovia said the deal was an attractive fit when 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- in 2000 with the bank suffer- ing from fast-paced deals and plung- ing profits. Well-liked throughout the ranks, OBSERVER FILE PHOTO the company veteran from Rocky 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 California Mount launched a massive restruc- thrift. From right: his wife, co-CEO Marion Sandler, and Wachovia executives Ben Jenkins and Bob McGee. turing, presided over a smooth merger with Winston-Salem’s Wa- helm of Golden West, husband-and- And Golden West had a record of pulled the trigger so quickly, I don’t chovia in 2001 and preached a devo- wife co-CEOs Herb and Marion San- virtually no loan losses – even in How we did this story know. I don’t think there was anoth- tion to customer service. dler had turned a savings and loan downturns. The Observer interviewed er bidder.” He also became known as a selec- with a few locations into a top 20 The meeting, which included no- more than two dozen current and It’s been reported that Citigroup tive deal maker. In 2003, he passed mortgage lender with 285 branches. frills sandwiches for lunch, conclud- former Wachovia and Golden and HSBC passed on Golden West on FleetBoston Financial. Two years Along the way, the company was ed with a deal well under way. Both West executives, employees and before its talks with Wachovia. But later, he turned down credit card gi- heralded for posting double-digit sides moved into investigating each others to produce this account. no other bidder ever publicly ant MBNA. In both cases, he didn’t profit growth year after year. But other’s operations, a process known The paper also reviewed securi- stepped forward. budge on price and resisted taking with an aging leadership team and a as due diligence. ties filings and court documents On the morning of Sunday, May 7, on too much risk for a bank of Wa- dependency on just one type of Thompson was back in Charlotte and conference call transcripts. 2006, Thompson and his team made chovia’s size. Its bigger crosstown ri- mortgage, Golden West began to ex- the next day to play golf with tour Most of the people interviewed a final presentation to the Wachovia val, , later swooped plore its alternatives, Herb Sandler star Vijay Singh in the Wachovia would speak only on the condi- board, including an assessment of in to score both $35 billion-plus said in an interview. Championship pro-am event. In the tion that their names not be credit quality and risk management. deals. On Tuesday May 2, 2006, Thomp- coming days, Thompson juggled his used, often citing the need to The directors, who met at least Thompson, however, had de- son and Wurtz met with the San- tournament hosting duties with protect their jobs or benefits three times during the due diligence clared his desire to expand his retail dlers and other top Golden West ex- high-stakes deal making. after departing the company. The period, had an extensive discussion, banking presence into California. ecutives at a downtown San Francis- ‘It was very different’ paper made repeated efforts to says Brown, the retired director. Flush with deposits, he also wanted co hotel. Herb Sandler, then in his talk with top executives, who “The fact of the matter,” the High to make more loans to consumers. mid-70s, says he and his team had in- During the rest of the week, a Wa- declined to comment individually Point public relations specialist says, In 2005, were making big vestigated Wachovia and heard good chovia team including chief risk offi- or through the company. “is that when the discussion took profits in a roaring housing market. things about Thompson and how he cer Don Truslow and Ben Jenkins, To contact reporter Rick Roth- place – go back and check the fact Average U.S. home prices increased handled mergers. head of the general banking opera- acker, e-mail rrothacker@charlot- book – Golden West had one of the nearly 13 percent, climbing at a near- Thompson and Wurtz seemed to tions, visited Golden West sites in teobserver.com or call (704) lowest loan default rates in the coun- record pace. In California, home know a lot about the company’s California and . 358-5235. try.” prices were up more than 117 percent business already, Sandler said. It may Top Wachovia mortgage execu- He also notes that a “major con- over five years. have helped that Wurtz, with the tives were notified the purchase was sideration for us was that they had a But late in the year, loan delin- N.C. bank since the mid-1990s, previ- in the works but they weren’t drawn and Jenkins – declined to comment lot of branches in California and the quencies and foreclosures edged up. ously worked for the Office of Thrift deeply into the due diligence. That for this story. West.” Economists warned of the possible Supervision, which regulated Gold- contrasted with earlier deals investi- Bank analyst Gary Townsend, The directors unanimously ap- risks of a slowing housing boom. en West. At the agency, the lender gated by the bank. Only a few now with Maryland-based Hill- proved the acquisition. The next Regulators also began increasing was seen as a model outfit. months earlier, for example, mort- Townsend Capital, said he met with morning at an investor presentation scrutiny of nontraditional loans. Thompson grew comfortable gage executives helped vet a possible Wurtz in August 2006 and the CFO in New York, Thompson told ana- In September 2005, Thompson with the lender’s nontraditional investment in mortgage and auto indicated that he had overcome ini- lysts he was “thrilled” with the deal. showed a tolerance for more risk in loans, later praising its “conserva- lender GMAC and recommended tial reservations about the Golden Sandler called it “a perfect cultural buying two small California lenders tive” approach. against the move. Thompson didn’t West deal after meeting with the fit.” that made some subprime loans to Its option ARMs, known as Pick- do the deal. Sandlers. Asked about the timing, Sandler borrowers with weaker credit. At A-Payment loans, gave customers Some technology executives who As chief risk officer, Truslow’s dismissed TV pundits he’d heard that time, Wachovia was largely monthly payment options, including had helped check out past acquisi- role was to help evaluate the loan that morning criticizing the option building its traditional mortgage a minimum payment that didn’t cov- tions weren’t clued in. “From every- portfolio. Seen as a quiet leader, he ARM and the possibility of a real es- business by hiring loan officers and er all of the interest owed. Choosing thing I saw it was very different,” one joined the bank in 2001 with the Wa- tate crisis. “That is a bunch of gar- investing in technology. A big acqui- that option caused the loan balance former executive said of Golden chovia merger. General banking bage,” he said. sition would be a faster way to grow. to grow, instead of shrink, a worry West. “It was a done deal. Make it chief Jenkins, who had come up Investors balked. In the first day of In late April 2006, Thompson for regulators and consumer advo- work.” through the ranks with Thompson, trading, Wachovia’s stock price learned Golden West might be for cates. Wachovia reviewed Golden was already leading an effort to build dropped nearly 7 percent. As the sale. The tip came from a chance en- The lender had pioneered its op- West’s loan portfolio, but to what new branches in California. bank’s shares slipped further that counter between an investment tion ARM in the 1980s, but faced in- level of detail is unclear. Dozens A voice absent from Thompson’s week, Wurtz held an unusual follow- banker working for Golden West creasing competition from the likes were involved in the entire due dili- executive suite was longtime CFO up conference call with analysts. and an attorney who advised Wa- of Countrywide Financial and gence process. Bob Kelly, who had departed about One asked about Golden West’s chovia. A few days later, Thompson . Golden West Wachovia executives were im- three months before the deal to be- average loan size, wondering wheth- and his chief financial officer, Tom boasted numerous safeguards, in- pressed with Golden West’s low loan come CEO of what is now Bank of er this implied its customers were Wurtz, were on a plane for Califor- cluding a cap on how much the mini- losses during a major California New York Mellon. Kelly was known less creditworthy. Wurtz said that nia. mum payment could increase each downturn in the early 1990s, when for speaking his mind and for some- wasn’t necessarily true. He pointed Acquisition takes shape month. Unlike most rivals, it held on- housing prices fell 20 percent and times offering contrarian opinions, to the smaller loans as a sign of Gold- to its loans, a major incentive to unemployment hit 10 percent. several current and former execu- en West’s lending discipline. In more than four decades at the make good mortgages. Thompson and other executives tives said. In hindsight, they wonder Another question was whether also took comfort in the relatively whether he would have questioned the Sandlers sold at the top of the small size of Golden West’s loans – the deal. market. “They have said very specif- less than $250,000 on average. That “He’d say, ‘Let’s step back and look ically that that is not the motivation stemmed from a strategy to avoid the at this a different way,’ ” says a for- for their sale,” Wurtz said, “ … and I potentially more volatile high-end of mer executive. Kelly declined to believe them.” the housing market. In more expen- comment. Culture clashes emerge sive California, the lender’s average Wall Street reacts loan size was about $338,000. Shortly after the acquisition’s an- The focus on smaller size loans The time it takes to pull together a nouncement, more than two dozen “gives you incredible confidence” big bank deal can vary widely. executives from both sides gathered partly because these mortgages Thompson spent months weighing at Wachovia’s uptown headquarters would get hit less than larger ones the 2001 First Union-Wachovia complex. It was a get-to-know-you “in a difficult environment,” merger. Bank of America looked ov- session. Thompson would say days later. er MBNA in a little more than a week Sitting in on the meeting was Jim During his tenure as CEO, in 2005. In the current financial cri- Judd, a top Golden West executive Thompson was known for a consen- sis, companies are being cobbled to- who had long piloted the lender’s sus-style approach to management. gether in weekends. mortgage machine with a no-non- In an August 2006 interview, he said The Golden West deal, from first sense, even combative management he was hands-on when needed but contact to announcement, took 11 style. Now, in his late 60s, he would also gave his executives room to days, with the formal due diligence soon be charged with leading the lead. Asked if he had any weakness- covering no more than six days. combined mortgage unit – even es, he said he needed a “really good With speed comes more risk, said though his company was the one be- CHUCK BURTON – PHOTO CFO, and I’ve got one, because I’m Townsend, the analyst, who ing bought. Wachovia CEO Ken Thompson (right) returned to Charlotte one day after not a numbers guy.” emerged as a critic of the deal. “I As a Wachovia mortgage execu- meeting with Golden West officials, to play with Vijay Singh during the Three of the top executives in- think Ken Thompson wanted to buy tive explained the bank’s customer Wachovia Championship’s pro-am in 2006. volved in the deal – Wurtz, Truslow Golden West,” he said. “Why they SEE WACHOVIA , 11A The Charlotte Observer • charlotteobserver.com ••• Sunday, December 21, 2008 11A

WACHOVIA • from 10A satisfaction surveys, Judd ques- tioned how the data was used. The Wachovia executive said the surveys helped gauge employee perfor- mance and calculate incentive pay. Judd dismissed the effort as stu- pid, recall sources at the meeting. Wachovia executives were shocked by the remark, which seemed to disparage Wachovia’s in- grained focus on customer service. The summit, in which Thompson made an appearance, would be the beginning of a culture clash that would embroil the combined mort- gage unit. Judd could not be reached for this story. The companies were different in many ways. Wachovia’s mortgage unit, part of a giant financial services company, pitched a variety of tradi- tional mortgage products mostly to its banking customers. Golden West largely offered its signature product, option ARMs. Wachovia mortgage executives didn’t see Golden West counterparts as true mortgage bankers, skilled in making a variety of loans and pack- aging them into securities for inves- tors. Instead, they saw them as slick GARY O’BRIEN – [email protected] salesmen who used less than sophis- Wachovia CEO Ken Thompson leaves the annual shareholders meeting in April in Charlotte. Investors had seen the value of their shares fall by about half ticated tactics. They were aghast at since 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. proposals to pitch loans at flea mar- kets and shopping malls. Golden West executives were lied heavily on credit scores. Golden cent in the $121 billion portfolio, in Smith, who took over as interim economic times. frustrated by Wachovia’s polite, de- West analyzed a borrower’s credit contrast to Golden West’s history of CEO, attributed the move to a series As Sandler sees it, Golden West liberative culture. At Golden West, history on its own, but didn’t always virtually none. That meant the bank of missteps, not just one incident. He has been unfairly blamed for Wacho- they prided themselves on walking require full documentation of in- had to start setting aside much more began the search for Thompson’s via’s myriad problems, and he sus- out of boring meetings and grilling come. money to cover current and future successor immediately, but the vacu- pects the bank has overestimated each other before making decisions. Pope took steps to better merge Pick-A-Payment losses. um in the corner office rattled inves- potential losses in the portfolio. He They were bewildered by Wacho- operations and to craft a long-term That contributed to stunning tors and earned the board criticism attributes the rising delinquencies to via’s complex management struc- mortgage strategy, but the environ- news April 14. Wachovia revealed a for not having a ready replacement. plunging housing prices and Golden ture. They bemoaned mind-numb- ment inside the unit was worsening, $393 million first-quarter loss, a cut Smith declined to comment for this West’s concentration in California ing conference calls in which scores employees said. Initially, Pope’s ap- to the lucrative shareholder divi- story. markets – not the nature of its prod- of people dialed in and no decisions pointment appeared to be a sign Wa- dend and plans to raise capital. In June, Wachovia stopped mak- uct. were made. chovia was reclaiming the unit, a for- Thompson was contrite: “I know ing Pick-A-Payment loans. “I plead guilty to being a residen- At Golden West’s headquarters in mer mortgage employee says, “but these actions are not without costs, Regulators step in tial lender,” he says. “This has noth- Oakland during a regular visit, San- there didn’t seem to be any action.” and I wish they were not necessary, ing to do with the quality of the lend- dler met with Thompson and out- California a liability but they are.” The following month, Smith ing.” lined some of his concerns, ranging Along with the earnings an- tapped a new CEO: Bob Steel, a U.S. He acknowledges the lender may from management structure to em- In late 2007, Wachovia began nouncement, Wachovia disclosed Treasury official and friend from the not have flagged problems in the In- ployee incentive pay. pointing to “several pockets” in Cali- some potentially troubling statistics Duke University board of trustees. land Empire and Central Valley soon Thompson was a “consummate fornia as the main source of its rising about the Pick-A-Payment portfolio. Steel began crafting a recovery strat- enough. In the past, Golden West gentleman,” but Sandler says he loan delinquencies. In 2005 and 2006, at the height of the egy, building on some of the work al- had identified overheated markets thinks the Wachovia CEO was a little California’s Inland Empire and housing boom, Golden West had ready underway. such as Las Vegas and pulled back. angry. “Like, ‘Who am I to be talking Central Valley regions, where Gold- made more loans to borrowers with For the mortgage unit – where Wa- “Maybe, you could say, ‘Gee, we to him like that?’ ” Sandler says. “My en West had about 17 percent of all of lower credit scores than in the past. chovia now said Pick-A-Payment shouldn’t have made loans in certain obligation was to make Wachovia a its loans, were suffering steep de- Also, the amount of deferred interest losses would reach 12 percent – he parts of California,’ ” Sandler says. better company.” clines in housing prices. These in the portfolio – the result of bor- announced plans to refinance exist- “We used to pride ourselves in get- A source familiar with the situa- drops would exceed 40 percent in rowers choosing the minimum pay- ing customers into traditional loans ting out. We probably were not as tion said Thompson listened to San- some areas, topping national rank- ment – had climbed to $3.5 billion, or and to slash mortgage jobs. quick in Inland Empire and Valley dler’s concerns over time and acted ings. 3 percent of the loan book, up from Soon after, CFO Wurtz and risk of- areas.” on some. Wachovia would later say Golden $449 million, or 0.39 percent, in 2005. ficer Truslow announced their de- Last month, the U.S. attorney in After the purchase closed in Octo- West’s concentration in these mar- In an interview the day of the partures. In a meeting with analysts San Francisco said the Justice De- ber 2006, Sandler, a major Golden kets was an unintended conse- earnings report, Thompson said the from research firm CreditSights, partment and the Securities and Ex- West shareholder, said he was disap- quence of its strategy to make loans company was analyzing its mortgage they admitted Wachovia was caught change Commission were investi- pointed that Wachovia rarely asked on moderately priced homes. As strategy but he expected the bank to off guard by a steep decline in home gating Golden West’s lending prac- for help. home values skyrocketed in Califor- offer an array of products, including values. They said the company’s pol- tices and whether it misrepresented Meanwhile, more than a half doz- nia, Golden West was priced out of Pick-A-Payment loans. Around then, icy of making mid-sized loans back- its portfolio to Wachovia during the en of Wachovia’s top mortgage exec- expensive coastal areas and made Wachovia began tightening Pick-A- fired by leading to the concentration sale. Wachovia faces lawsuits by utives soon left the company, either more loans in the state’s interior. Payment lending standards, requir- of mortgages in California’s Inland shareholders over the deal and from uneasy with the unit’s direction or Now as home prices fell in these ing minimum credit scores and in- Empire and Central Valley regions. customers who allege improper squeezed out. once fast-growing areas, foreclo- come verification. They also acknowledged another lending practices. Pick-A-Payment loans continue sures climbed. Blue-collar workers Cascade of problems weakness in the Pick-A-Payment The Wells deal, pending share- defaulted as construction-related product: holder approval, is expected to close In summer 2007, Wachovia jobs dried up. Commuters soured on A week later on April 22 at Wa- “It seems that borrowers who by year’s end. named one of its own to run the distant neighborhoods as gas prices chovia’s annual meeting, investors, choose a mortgage with the option Wells Fargo has said it plans to mortgage unit in anticipation of rose, feeding the downward spiral in who had seen their shares fall by of lower minimum payments may in phase out the Golden West portfolio. Judd’s retirement at the end of that home prices. Some borrowers about half since the Golden West fact be indicating to the lender that The bank said efforts to work with year. stopped making mortgage payments deal was announced, called for there is more likelihood that they struggling borrowers show promise, David Pope was a well-respected when the equity in their homes van- Thompson’s job. Soon after, Wacho- will not have the resources to cover but it’s still projecting losses to reach executive with a diplomat’s touch. ished, a new behavior that befuddled via disclosed an embarrassing cas- the (full) payment,” the analysts $36 billion – or 29 percent of the He had overseen some mortgage bankers. cade of unrelated problems, includ- wrote. portfolio. That’s nearly four times functions in the past but was known Once seen as a major attraction, ing a settlement of up to $144 million In addition, they wrote, “Wacho- Wachovia’s initial 7.5 percent esti- more for his experience in retail and Golden West’s presence in Califor- over ties to telemarketers who via was frank that it had missed an mate in April. business banking. nia was becoming a liability. scammed its elderly customers. opportunity” to aggressively “sell “As we’ve always said,” Wells Far- While he might be able to ease In early 2008, Wachovia execu- Thompson was losing his hold on down” the portfolio in early 2007 go CEO John Stumpf told analysts tensions between the warring fac- tives began acknowledging the bad the company. In May, lead director when the loans were still attractive this month, “we do not like the op- tions, some questioned whether timing of the deal. But they kept Lanty Smith, who had backed him at to investors. tion ARM product.” Pope was the right person to navi- echoing Golden West’s faith in the the shareholder meeting, assumed By mid-September, Steel’s plans — RESEARCHERS MARION PAYNTER AND MARIA gate what had become one of the portfolio. Thompson’s chairman title. In an ef- became moot. The failure of invest- DAVID CONTRIBUTED. worst housing market collapses in In a January conference call re- fort to bring in outside help, Thomp- ment bank Lehman Brothers roared history. “Do you want a nice guy or porting fourth-quarter earnings, son contacted former Bank of Amer- through the credit markets. The do you want someone who knows Thompson pointed to Golden ica CFO Al de Molina about a pos- Sept. 25 collapse of Washington Mu- the industry and can get you through West’s minuscule losses in the 1994 sible role. Thompson also worked tual, a major option ARM lender, After the fall this environment?” one former Wa- California housing slump. Even if it on changes to the bank’s finance and ratcheted up investor anxiety about • Ken Thompson: The former chovia executive says. got worse, he said, “our Pick-a-Pay risk management structure. He Wachovia’s loans. A federal bailout Wachovia CEO, 58, left with sev- The change in leadership didn’t portfolio will generate very mean- didn’t get the chance to test his plans. plan intended to calm roiling mar- erance of $1.45 million and stock halt Wachovia’s sale of Pick-A-Pay- ingful bottom line profits in 2008 – On Thursday May 29, Smith kets stalled in Congress. awards valued at $7.25 million. ment loans. Two of Pope’s top depu- and I do not believe that investors called him into his 40th-floor office. In a frenzied last weekend of Sep- The stock has since fallen by ties were from Golden West and grasp that fact today.” Thompson’s more than three-de- tember, federal regulators ordered more than backed the product. The picture grew grimmer in Feb- cade career at the company was over. Wachovia to sell most of its opera- three-fourths. By early 2008, the subprime mort- ruary and March as Wachovia’s risk He later reviewed the language in tions to New York-based Citigroup. For 2006 and gage business had collapsed, and managers, led by Truslow, adopted the June 2 news release. He wanted it Days later, Wells Fargo trumped it 2007, Thomp- now investors were losing their ap- new modeling techniques for pre- clear that he had been asked to step with a rival offer. In November, Steel son received petite for other nontraditional loans. dicting defaults. Wachovia now ex- down, stressing, “I didn’t throw in said the bank ran out of time to deal $7.3 million in Rivals such as Bank of America and pected cumulative losses of 7.5 per- the towel.” with its troubled loans amid historic salary and Washington Mutual were abandon- bonus. ing option ARMs or tightening stan- Wurtz dards. Wachovia was diving in deep- • The lieuten- er. ants: Chief Golden West specialized in selling financial officer Pick-A-Payment loans mostly Tom Wurtz, 46, through outside brokers, a type of and chief risk sales force that drew criticism for officer Don pumping out mortgages with little Truslow, 50, Truslow regard to their suitability for borrow- have left. Gen- ers. Now, in addition to these bro- eral bank head kers, the goal was to sell the loans Ben Jenkins, 64, will retire after through Wachovia’s more than 3,000 the Wells Fargo sale is complete. branches coast to coast. Mortgage head David Pope, 48, “We thought it was a good product will stay with Wells Fargo in an at the time the decision was made to “executive transition role.” merge with Golden West,” Pope said • Bob Steel: The current Wacho- in a February 2008 interview. “We via CEO, 57, will depart after the think it’s a good product today. We Wells Fargo sale. think it will be a good product in the future.” He declined to comment for • Herb and Marion Sandler: The this story. former Golden West co-CEOs run As the housing crisis worsened a foundation that benefits asth- early this year, Wachovia loan offi- ma research, investigative jour- cers told the Observer their jobs nalism and other causes. Their were threatened for not selling stake in Golden West was initially enough of the loans, which some felt valued at about $2.6 billion un- weren’t appropriate for most cus- der the merger proposal. Herb tomers. Executives who came from Sandler said they put $1.3 billion Golden West called the loan officers into their foundation, largely in whiners who didn’t understand the JOHN D. SIMMONS – [email protected] cash. The couple still own Wa- product. Wachovia CEO Bob Steel (from left), Wells Fargo CEO John Stumpf and Wachovia general bank head Ben Jenkins chovia stock personally. He won’t Both sides also sparred over un- met with employees at the bank’s uptown headquarters on Oct. 15. Stumpf told workers that his job is “to help all say how much. derwriting standards. Wachovia re- of you stay with the company,” but added, “obviously, no commitments, no promises.” UCLA beats Xavier BEST DON’T-MISS SPORTS, 1C GRANDFATHER MICK JAGGER How he still gets HIKES what he wants IN PARADE MAGAZINE IN TRAVEL, 1I

SHOT AT FINAL FOUR Davidson’s biggest

game ever SUNDAY, MARCH 30, 2008 + CDEF ••• Price varies by county| $1.50 By Kevin Cary www.charlotte.com [email protected] DETROIT — Davidson AT STATE AGENCIES basketball player Bryant Barr understands what’s at stake today. Officials “We know the whole POLICE TARGET Charlotte area will be watching and cheering for told to us,” he said of the Wildcats’ 5:05 p.m. Midwest Regional destroy championship game HOT SPOTS against No. 1 seed Kansas. “It just makes us want it Crime clusters at apartments, near highways and retail areas e-mails even more.” A victory today at Ford ––––––– Field would send No. 10 Notes suggest Easley’s seed Davidson to the Final press office gave order Four in for a ––––––– shot at its first NCAA Divi- sion I title. By Pat Stith “We might be a little (Raleigh) News & Observer school,” said Davidson star State government public in- guard Stephen Curry. “But formation officers were in- structed by Gov. Mike Easley’s we can play with anyone in press office to delete e-mail to the country.” and from the Governor’s Of- More than 550 students – fice, according to notes the Governor’s Office released roughly a third of David- Saturday. son’s 1,700 student popula- Andrew Vanore, a lawyer tion – are expected to see who works for Easley, pro- the game in Detroit. duced notes made by two pub- lic information officers show- That includes 200 who ing that they and others were were expected to board told at a meeting May 29 to de- five buses at 3 a.m. today stroy e-mail messages. Vanore K for the 11-hour trip. said a third public information officer, whom he would not identify, also recalled those in- structions. Vanore said, however, that the notes don’t mean what they say. He also said the instructions DANA ROMANOFF – [email protected] were not fol- Charlotte-Mecklenburg police Officer R. Sanner patrols the Wood Field apartments near Albemarle Road and Farm Pond Lane. lowed. The area is one of the city’s hot spots for crime. Some residents say they’ve noticed a stronger police presence. The News & Observer By Cleve R. Wootson Jr. had requested [email protected] 77 Obama Clinton High-crime Easley the notes of Charlotte-Mecklenburg police have identified 36 “hot the periodic 855 meetings of the public infor- Politics | 4A spots” where concentrated crime demands their attention – area has fear mation officers. and can make life hard for people who live, work or shop there. 485 485 as a constant Julia Jarema, public infor- Will tough fight The hot spots contain some of Charlotte’s most violent mation officer at the Depart- Staff Reports leave party beaten? streets but also include upscale retail areas where thefts ment of Crime Control and The 18-inch metal pipe fits Public Safety, recorded this from cars prompt most calls for police. Some Democrats fear that if the Detailed comfortably in Sally John- note for the meeting in ques- The trouble spots are spread across the county, as police son’s hand. tion: “Public records request – close contest between Sens. have targeted the two or three most consistently challenging map inside She uses it for protection as increasing – careful of email – Hillary Clinton and Barack See where she makes her way from the areas in each of the 13 patrol divisions. Many hot spots are delete emails to/from gov. of- Obama goes on too long, it will Mecklenburg parking lot, up a walkway and fice every day”. clustered along highways and in areas packed with aging County’s “hot two flights of stairs, into her Diana Kees, public informa- hurt the party in November. apartments, though every section of Mecklenburg has a spots” are for east Charlotte apartment. tion officer at the Department And they fear alienating large place that keeps police busy. violent and There, her son waits, watch- of Environment and Natural property crime. ing the shadows surrounding Resources, recorded this note: blocs of voters if superdelegates Charlotte’s three major shopping malls and a Ballantyne his mother. SEE TRENDS|8A “emails — more & more pub- decide the nomination. This has been her nightly lic records requests (blogs?) ▲ Edwards won’t say if he’ll routine since Feb. 8, when be careful w/emails; delete two men robbed them at gun- emails to and from gov office make an endorsement. 4A. Sally Johnson, point. Andrew, 15, begged every day”. a resident of a them to leave. Questions about the way Farm Pond “Just take what you want,” the Easley administration han- apartment he remembers shouting. dles e-mail arose after an MoneyWise | 1D complex in The robbers beat her, stole N&O series, “Mental Disor- east her purse – and her peace of der: The Failure of Reform,” How Charlotte’s Charlotte, mind. which ended March 2. The se- carries a This is her life in a hot spot, ries reported on an ill-con- economy is faring metal pipe one of 36 areas targeted by SEE EASLEY|12A with her when Charlotte-Mecklenburg po- Assessing the state of jobs, she goes to SEE HOT SPOT |9A retail, housing and growth. and from her Online Extras car in the Fired public information officer parking lot. Online Video for N.C. Department of Health A ride-along with a Charlotte- and Human Services says Mecklenburg police officer e-mails were deleted. Dreary JEFF SINER – [email protected] WWW.CHARLOTTE.COM/news WWW.CHARLOTTE.COM/news Low: 43. High: 45. Chilly with periods of light rain today and tonight. Warmer CUSTOMERS, EX-EMPLOYEES QUESTION PICK-A-PAYMENT Monday. Forecast, 28A.

Arts & Living..1E Local & State.1B Complex Wachovia mortgage program worries some Books...... 5E Moneywise...1D Celebrations .1H Movies...... 6E ––––––– “Pick-A-Payment” mortgage that offered “I said, ‘Are you crazy?’ ” O’Connor, 66, persuade borrowers to use the loans. Classified...... 1F Obituaries.....4B flexible payment options but a higher in- said. “I’m not going to spend that much Wachovia has required its loan officers Editorial ...... 26A Sports...... 1C Staffers had a sample script – terest rate. on interest. It was very disheartening.” to sell a minimum number of Pick-A- Horoscope....6E Travel...... 1I and sales goals to meet O’Connor said she initially agreed to Since buying Pick-A-Payment special- Payment, traditional and other loans or Delivery Assistance ––––––– apply for a Pick-A-Payment loan until ist Golden West Financial in 2006, the face discipline, including termination, ac- or to Subscribe...... 800-532-5350 she learned the interest rate. The full Charlotte-based bank has been rolling cording to interviews and documents. A By Rick Rothacker principal and interest payment option out these nontraditional loans at SEE WACHOVIA|6A [email protected] had a rate of 6.85 percent, higher than the branches and mortgage offices around MORE INSIDE, 6A © 2008 The Charlotte When she stopped by a Wachovia 6.75 percent rate on her existing mort- the country. But the push has become a Observer Vol. 139, No. 90 branch in Charlotte last month, Marilyn gage. A regular 30-year fixed rate at the sore spot with some customers and em- • Selling Pick-A-Payment mortgages: A O’Connor asked about refinancing her time had a 5.5 percent rate, according to ployees. Loan officers say they have faced sample script from Wachovia townhome. Instead, she got a pitch for a her loan documents. intense pressure from the company to • Wachovia No. 2 in option ARMs 6A SUNDAY, MARCH 30, 2008 • • • FROM PAGE ONE THE CHARLOTTE OBSERVER | www.charlotte.com Complex mortgage plan worries some ––––––– Wachovia from 1A Selling Pick-A-Payment mortgages A training script obtained by the Observer gives Wachovia loan training script obtained by the officers a sample pitch for selling Pick-A-Payment loans, which Observer tells loan officers, offer customers flexible payment options but can increase a known as mortgage consultants, borrower’s loan balance. how to sell Pick-A-Payment In the 14-page document, the first two pages emphasize the loans, including empathizing variety of products the bank offers but the rest is mostly about with customers’ cash flow prob- Pick-A-Pay loans and how “savvy homeowners can turn their lems. mortgages into smart financial planning tools” in today’s An excerpt: Do you have any economy. credit card debt? [Wait for ac- From the presentation: knowledgement.] I know I cer- If you’re like us, there’s more coming out than coming in some tainly have my share. And we’re months, and we start putting more and more charges on our paying 13 to 29 percent. credit card. …What can we do? Uncle Sam isn’t going to take less. The bank said it has sales goals Or the car company. Or the credit card company. The children like any company. Spokesman need to be cared for. You can’t get along without insurance. Plus, Don Vecchiarello declined to you need to eat, and keep the lights on. That leaves your provide details on past targets mortgage payment. …What if you could pay a lot less on your but on Friday said the bank no mortgage some months when you need flexibility? longer has a “specific Pick-A- Payment goal at this time for em- The script instructs loan officers to tell customers that ployees to sell.” choosing the minimum payment option adds to the customer’s While Wachovia dismisses loan balance. But the focus is on the extra “cashflow” customers employees from time to time for DANA ROMANOFF – [email protected] can get by paying less per month. underperformance, “we have not Marilyn O’Connor felt that Wachovia did not have her best interests in mind when she tried to refinance Wachovia has training programs for everything the bank does terminated anyone for not selling her townhome. A loan officer originally suggested Pick-A-Payment for her mortgage, O’Connor says. as it tries to help its salespeople be the “best they can be,” bank enough Pick-A-Pay loans and spokesman Don Vecchiarello said. “The most important thing,” he will not in the future,” Vecchia- Slower mortgage lending loans to customers. other loans. If standards were said, “is listening to the customer.” rello said. The bank has three main ways not met, “it may lead to further The loans can be more profit- Option adjustable-rate mortgages, to sell mortgages: call centers corrective action up to and in- Wachovia No. 2 in option ARMs able for the bank because they which Wachovia calls Pick-A- that handle phone calls and Web cluding termination,” the docu- carry a higher interest rate than Payment loans, have declined site inquiries; loan officers who ment said. According to Inside Mortgage Finance, Wachovia in 2007 was traditional mortgages and be- faster than traditional mortgage work in mortgage offices; and Vecchiarello, the bank spokes- the second biggest provider of option adjustable rate mortgages, originations overall. cause the bank keeps them in its loan officers who work in bank man, said the company’s sales or option ARMs – the category that includes Pick-A-Payment own portfolio, instead of selling Option ARMs branches. The Observer has goals have been changing in a loans. them off to investors. Consumer In billions o rs heard from employees in all rapidly shifting mortgage envi- Seattle-based Washington Mutual was No. 1 with $23.67 billion advocates contend they should three areas who say they have ronment. The company, he said, in loans, ahead of Wachovia’s $22.81 billion. About one-fourth of $238 $255 be reserved for savvy customers $145 faced mandates to sell more wants its employees to sell a mix Wachovia’s $97 billion in mortgage volume last year was in option who understand a complex prod- $111 Pick-A-Pay loans. of loans, including traditional ARMs. uct that can increase a borrow- A former Wachovia mortgage mortgages that can be sold to in- Over the last six months, about 11 percent of loans made in the er’s loan balance instead of de- ’04 ’05 ’06 ’07 consultant in Texas told the Ob- vestors as well as Pick-A-Pay and Carolinas were Pick-A-Pay loans, the bank said. One of the key features of an option ARM is that borrowers can creasing it. All mort server he was supposed to sell other mortgages that it keeps in Analysts also are worried be- two Pick-A-Pay loans per month, its portfolio. make a minimum payment that doesn’t cover all of the interest. In trillions f dollars cause Pick-A-Payment loans are a requirement he didn’t meet. Ira Rheingold, executive direc- When this occurs, the total loan balance grows, instead of shrinks. $3.12 $2.98 showing higher delinquencies $2.92 $2.43 The consultant, who spoke on tor of the National Association of Wachovia calls the amount added to the loan balance “deferred than traditional mortgages amid condition of anonymity because Consumer Advocates, said pres- interest.” the U.S. housing crisis, partic- he didn’t want to jeopardize his sure on employees to sell Pick-A- At the end of December, Wachovia borrowers had accumulated ularly in tough housing markets ’04 ’05 ’06 ’07 career, said he felt the loans were Pay mortgages worries him $3.1 billion in deferred interest, nearly double the balance at the such as California. The bank’s SOURCE: Inside Mortgage Finance STAFF CHART proper for only a limited number “enormously” because the loans end of 2006. The amount, though, was a small part of the bank’s stock is down more than 56 per- of customers. In particular, he aren’t suitable for most borrow- $227 billion consumer real estate portfolio, which includes cent since agreeing to buy Gold- didn’t think they were right for ers. mortgages and home-equity loans. en West, which also gave Wacho- • An interest-only payment. first-time homebuyers who “Employees are caught in the via new West Coast branches. • A minimum payment that might not understand their loan middle trying to hold onto their The shares closed Friday at doesn’t cover all of the necessary balance could increase. jobs,” he said. “Unless (borrow- $25.99, down $1.08. interest, with the unpaid interest “That’s all we heard about was ers) are really sophisticated and tors that monitor Wachovia, de- thing comes up, that’s why I have The bank, which has burnish- added to the loan balance. Pick-A-Pay,” said the consultant, understand what they’re doing, clined to comment on the bank’s savings.” ed a strong customer service rep- The loan comes in adjustable- who said he was dismissed for it’s a recipe for disaster.” policies. After turning down the Pick- utation in recent years, acknowl- rate and fixed-rate versions. “production reasons.” “If you Additional scrutiny Vecchiarello said Wachovia’s A-Pay loan, she initially chose to edges the loans aren’t right for all Wachovia has expanded into sold a 30-year fixed (rate mort- goal is to listen to customers, as- refinance her home through Wa- customers but argues they offer these mortgages at a time when gage), they’d say, ‘Why didn’t you In the past couple of years, sess their needs and provide chovia with a traditional 30-year flexibility to borrowers who others are pulling back. Char- sell a Pick-A-Pay?’ ” nontraditional mortgages have them with options. “That’s the fixed-rate mortgage at an esti- need extra cash for savings or to lotte-based Bank of America, for Another former loan officer, gained more scrutiny from reg- beauty of our model,” he said. mated rate of 5.5 percent. Then pay down other debt. The bank example, stopped making the who also spoke on condition of ulators because of concerns In the case of O’Connor, the she and her husband, Michael, says the loans come with numer- loans last year. anonymity to protect her career, about their complexity and the Charlotte customer, a Wachovia decided to hold off on refinanc- ous protections, including a cap Since buying Golden West, told the Observer she left last risk they can present lenders. loan officer outlined a sample ing all together. She lost a $75 ap- on the amount the loan balance Wachovia has been promoting year because of the pressure. She In 2006, regulators issued Pick-A-Pay loan that had four plication fee. can increase. It also analyzes the Pick-A-Pay loans with a TV com- said she didn’t want customers to guidance to banks that included monthly payment options, rang- Vecchiarello, the bank spokes- borrower’s ability to repay based mercial, in-branch brochures owe more money on their loan a caution against employee in- ing from $917.18 to $442.63, ac- man, said the bank’s loan officer on the full interest rate, not a low and information on its Web site. when they went to sell their centive plans that could lead to a cording to materials she re- appears to have acted appropri- introductory rate. The push comes as Wachovia home. “I want them to have heavier concentration of these ceived. ately by giving a customer op- Pick-A-Payment loans are and other banks are trying to im- 10 percent down for their next loans in financial institutions’ O’Connor, who works part tions. The Pick-A-Pay loan “is a “one of the many products we’re prove profits as they wrestle home,” she said. books. “Attention should be time in home health care, said valuable product to offer to cus- able to offer,” Vecchiarello said. with bigger loan losses and a According to an employee paid…to using compensation she didn’t want flexibility at the tomers,” he said. “It’s not right “We feel like we do it in the right slowing economy. Wachovia document dated last fall, loan of- programs that do not improperly expense of a higher interest rate. for everyone.” way.” faces particular scrutiny because ficers in branches had a “mini- encourage lending personnel to “Listen, I pay my mortgage no Monthly options it bought Golden West for mum standard” requiring them direct consumers to particular matter what,” she said. “If some- Rick Rothacker: 704-358-5235 $24 billion at the peak of the to sell one Pick-A-Pay loan, one products,” the guidance, signed The Pick-A-Payment, or Pick- housing boom. traditional mortgage and one off on by five regulatory agen- A-Pay, loan gets its name because The Observer in January re- other type of mortgage per cies, said. it comes with four monthly pay- ported that employees receive month. A higher “performance The Office of the Comptroller ment options. Homeowners higher incentive pay for selling goal” called for selling two Pick- of the Currency and the Office of each month can make one of four Pick-A-Pay and some other A-Pay loans per month, plus six Thrift Supervision, two regula- payments: loans. The bank says it pays the • Full interest and principal pay- extra compensation because the ment that pays off the loan in 30 loans take longer to explain to years. customers. Consumer advocates • A higher payment that would worry that could encourage em- pay off the loan in 15 years. ployees to sell inappropriate 6 EASY PLACES Save$93 STAY CHEAP ON THE coupons N.C. COAST. TRAVEL inside

SUNDAYSUNDAY •• JUNEJUNE 8, 8, 2008 2008 •• $1.50$1.50 charlotte.com Price varies by county C D E F ••• + Clinton ends bid with Funding call to elect Obama After a heated campaign, stage in the National Building Mu- seum, Clinton spoke not only of pet she praises him and talks about the importance of electing about her milestone run. Obama, but also the extent to which her campaign was a mile- By Adam Nagourney stone for women seeking to be- projects and Mark Leibovich come president. New York Times She urged women who had fol- WASHINGTON — Sen. Hillary Clin- lowed her campaign not to take the ton ended her campaign for presi- wrong lesson from her loss. dent Saturday with a rousing fare- “You can be so proud that, from thriving well to thousands of supporters now on, it will be unremarkable for and an emotional and unequivocal SEE CLINTON, 7A RON EDMONDS – ASSOCIATED PRESS PHOTO Anger over earmark abuse hasn’t call for them to get behind Sen. Ba- rack Obama, who defeated her for SEE VIDEO OF Sen. Hillary Clinton, D-N.Y., speaks in Washington on Saturday. “I ask stopped lawmakers from adding the Democratic nomination. CLINTON’S SPEECH all of you to join me in working as hard for Barack Obama as you have billions in spending to legislation. For 28 minutes, standing on a www.charlotte.com/politics for me,” Clinton said. By Andrew Taylor and Jim Kuhnhenn Associated Press WASHINGTON — So much for trimming the pork. The practice of decorating legislation with THE SWIFT FALL OF billions of dollars in pet projects and federal contracts is thriving on Capitol Hill – despite 1976 public outrage that helped flip control of Con- Joins First Union gress two years ago. out of Wake For- More than 11,000 of est’s business those “earmarks,” 2008 KEN THOMPSON school. worth nearly $15 billion, Earmarks were slipped last year NATIONAL 2000 into legislation telling the government where TOTAL Succeeds Ed to spend taxpayers’ Crutchfield as CEO money this year, keep- and leads a mas- ing them at the center of sive restructuring. $15 Washington’s culture of billion money, influence and N.C. TOTAL 2001 politics. Merges First Union It’s a pay-to-play with Wachovia, sandbox where, critics fending off rival bid say, waste and abuse of- $234 by SunTrust. ten obscure the good million that earmarks can do. S.C. TOTAL An examination of 2002 many of those earmarks First receives rec- in a project sponsored ognition for top by the Associated Press $151 customer satisfac- Managing Editors million tion in banking. found much greater dis- closure since 2006, but ONLINE it found no end to what DATABASE 2006 State-by-state Seals $24 billion has become ingrained behavior in Congress. earmarks purchase of Golden charlotte.com/news West Financial to Millions of the dollars expand into Cali- support lobbying firms fornia and mort- that help companies, universities, local gov- gages. ernments and others secure what critics such as Republican presidential candidate John McCain call “pork-barrel” spending. The law JUNE 1 forbids using federal grants to lobby, but lob- Retires at board byists do charge their clients fees that often request. equal 10 percent of the earmark they help win. STAFF ILLUSTRATION BY WM PITZER Earmark winners and their lobbyists often reward the lawmakers who sponsor their proj- He was respected for cautiously building Wachovia into a banking pillar, ects with campaign contributions. For many members of Congress – especially those on the appropriations committees, such as Rep. but some missteps and a tumbling economy brought an end to his tenure John Murtha, D-Pa. – campaign donations from earmark-seeking lobbyists and corpo- By Rick Rothacker People who know Thompson say he was sur- pivotal blunder. The deal flayed rate executives are the core of their fund- [email protected] prised by the timing and disappointed. He had his reputation as a cautious buyer raising. At a party before last month’s Wachovia been determined to turn the bank around. and later unleashed burgeoning Rep. David Price, the only N.C. lawmaker Championship, bank clients and VIPs were Just two years ago, Thompson’s ouster loan losses. who’s on an appropriations committee, said preparing for a sun-splashed week at Quail would have been unthinkable. Wachovia’s Against this backdrop, a rash of he didn’t keep track of how many of the Hollow Club watching the world’s best golf- stock had appreciated significantly under his missteps in April and May that $90 million in earmarks he sponsored were ers. tenure, he’d revitalized customer service and Smith raised questions about manage- SEE EARMARKS, 11A The Charlotte bank had suffered a tumultu- his acquisitions had cemented the bank as a ment’s grip on the company’s ous spring. But chief executive Ken Thomp- long-term player in the industry. business practices ultimately would cost son’s mood was good. The former Rocky Mount high school Thompson his job. The bank’s board, led by WHAT’S AN EARMARK? “Why wouldn’t it be?” says Charlotte busi- sports star had become a respected figure on influential chairman Lanty Smith, decided An earmark is a specific project not nessman Cameron Harris, who saw his friend the Charlotte civic scene and in the banking that cumulative “disappointments and set- requested by the president but inserted into at the event. “He didn’t know his board would world. Earlier this year, he rose to chairman of backs” required a new leader. spending bills. Critics call it “pork barrel” turn on him.” a prestigious industry trade group. Smith, a director for 21 years, had backed intended to benefit a politician’s constitu- A month later, Thompson, 57, would be out His decision, however, to buy mortgage spe- Thompson’s deals over the years and voiced ents in return contributions or votes. Ad- of a job, forced to retire by the board after eight cialist Golden West Financial in May 2006 at support for him just weeks earlier. In an inter- vocates say earmarks ensure community years at the helm and 32 years at the company. the peak of the housing boom would prove a SEE THOMPSON, 4A projects are funded.

TODAY’S MUST-READ Seniors you should know: Christina Nixon conquers Run for judge rich in drama high school while battling a rare disease that brings Bill Belk opposes the man whose move for a scion of Charlotte’s most prominent retail family, a millionaire so- uncertainty each day. 1B ruling cost him big in a divorce. cialite who lives in a gated community He wants to “reform the system.” and enjoys foreign travel and fine wine. o o ASSOCIATED PRESS PHOTO The workload is heavy and complex, even 98 72 By Jim Morrill tedious. The starting pay is $106,445. ANCHOR GUIDED [email protected] “I’m not running just for District Blistering: Partly cloudy but hot VIEWERS THROUGH Bill Belk hasn’t had much luck with Court,” Belk says. “I’m running to reform judges. the system.” Arts & Living...... 1E MoneyWise ...... 1D OLYMPIC MASSACRE In a marathon divorce case, one denied Critics call it sour grapes. Some warn Books...... 5E Movies ...... 7E Jim McKay, the ABC sports broad- him custody of his children. Another award- his bid could have a chilling effect on Bill Belk Celebrations...... 1H Obituaries ...... 4B caster who covered 10 Olympic ed his ex-wife a majority of their $5 million judges who rule in cases involving rich lit- Classified ....7D, 6F Sports ...... 1C joint estate. And in February, a third found igants who could threaten their careers. Real Estate ...... 1F Delivery Games and anchored “Wide World of Editorial ...... 22A Assistance or to Sports” for 25 years, died Saturday. him in contempt and threatened to slap him It’s one of more than a dozen contested in jail. court races facing Mecklenburg voters. Horoscope ...... 6E Subscribe In 1972, he guided viewers through Local & State.....1B ...... 800-532-5350 On the day Belk got the contempt order – All are nonpartisan and relatively ob- the sporting world’s most horrific for failing to give his ex-wife tickets to a scure, certain to be eclipsed by higher- moment, the 1972 Israeli massacre at North Carolina football game – he went to profile campaigns and more likely to be the Munich Olympics. 2C Raleigh and filed to run for judge. His fall op- decided by name recognition than issues. + © 2008 The Charlotte Observer Vol. 139, No. 160 ponent: Ben Thalheimer, the Mecklenburg “There are no safe District Court seats Big Brown loses County judge who presided over the long anymore,” says retired Judge Chase Saun- No Triple Crown winner this year. 1C and costly property phase of his divorce. ders. “All one can hope for is an informed District Court seems an unlikely career SEE RUN, 6A Judge Ben Thalheimer 4A Sunday, June 8, 2008 ••• charlotte.com • The Charlotte Observer The swift fall of Wachovia’s Ken Thompson THOMPSON • from 1A view, he said the decision was difficult because Thompson was a friend, but board mem- bers had a “higher obligation to the company, its shareholders and its employees.” In March, as Thompson’s troubles were building, state Rep. Ruth Samuelson, R-Meck- lenburg, ran into him at the Foundation for the Carolinas annual meeting at the Char- lotte Convention Center. Thomp- son, who declined to comment on his departure, was JEFF SINER – [email protected] set to become the Ken Thompson signals that his drive is going to the left from philanthropy’s the 13th tee box during the Wachovia Championship pro-am in Samuelson chairman. April at Quail Hollow Club in Charlotte. Samuelson, who valued his counsel over third-party group to analyze its CEO, while vice chairman Ben the years, gave him a hug and risk-management practices. Jenkins would serve as interim told him she was praying for “My job is to address the chief operating him. “It must not be working,” problem head-on, and that’s officer. The bank he joked, Samuelson recalls. absolutely what I intend to do would launch a He added: “This is the hardest with 100 percent commit- search for a new thing I’ve ever had to go ment,” he said. CEO, considering through.” For months, Thompson had internal and ex- N.C. Gov. Mike Easley, a been working long hours and ternal candidates. boyhood friend from Rocky eschewing vacations, Harris Jenkins Such a hunt could Mount who regu- said. Meanwhile, chairman take three to four larly seeks his Smith was seeking counsel. months, a knowledgeable re- economic advice, About a month ago, Smith cruiter said. talked to Thomp- called former Wachovia chair- The move saddened em- son about a week man Bud Baker to get his ployees who had known ago, when his de- thoughts on the company. Bak- Thompson for years and raised parture was alrea- er, who retired in 2003, said he questions about the bank’s fu- Easley dy underway. didn’t ask if the board was con- ture, including the possibility Thompson was sidering a CEO change, but he of a takeover. Smith said Wa- handling it well and praised the told Smith it was “a decision chovia planned to remain inde- company and its employees, they would have to make,” add- pendent and still had strong Easley said. OBSERVER FILE PHOTO ing: “At the end of the day, the businesses. In high school, Thompson Then-CEO of Wachovia Bud Baker (left) jokes with First Union CEO Ken Thompson as they leave board works for the sharehold- Some analysts questioned would chew out teammates the Wachovia shareholders meeting in Winston-Salem in 2001 after their proposed merger won ers and not management.” whether Smith was the right who didn’t give their full effort wide approval. Smith wouldn’t disclose de- person to take charge, citing on the football field. Easley tails on the board’s decision- the board’s approval of the knew Thompson had driven was showing signs of slowing. billion buyout of brokerage crowded an uptown hotel ball- making, but said there comes Golden West acquisition. Wa- himself just as hard over his Later, analysts would ques- A.G. Edwards. They wondered room to call for Thompson’s an “inflection” point in an or- chovia’s shares fell more than three-decade career. “I told tion whether Wachovia did a if the bank could retain top resignation. He responded that ganization when new leader- 15 percent last week to $20.13, a him, ‘You need to take a thorough enough examination brokers and clients. he was the right person to lead ship can be an energizing level last seen in late 1994. break,’ ” Easley said. of Golden West’s portfolio. But A vocal opponent was Ben a recovery. Smith again ex- force. Those who know Smith Thompson’s plans are un- First Union-Wachovia merger the source familiar with the sit- Edwards III, the retired A.G. pressed confidence in Thomp- said he is a strategic thinker clear. He’s required to step uation said the bank’s biggest Edwards CEO, whose succes- son. who doesn’t make snap judg- down as chairman of the Fi- Thompson had long been a mistake was not predicting sor forged the deal. In an inter- But a steady drip, drip, drip ments. nancial Services Forum be- rising star when he took over in such a precipitous decline in view, he said he’s heard a lot of of miscues followed. Baker, who engineered the cause he isn’t a sitting CEO. 2000 as CEO of First Union, the housing market. dissent within both compa- In a 12-day period, the bank First Union-Wachovia merger Other companies and charita- which would later become Wa- As the deal was coming to- nies. “I think it was an ill-ad- agreed to a $144 million settle- with Thompson, said he had ble causes, including the Foun- chovia. An internal survey of gether that summer, Thomp- vised thing from the get-go,” ment over its ties to telemarke- no knowledge of the board’s dation for the Carolinas, ex- First Union’s top 30 leaders son remained optimistic. “We said Edwards. ters, faced a report that it was workings but wasn’t surprised pect him to stay on their showed he ranked No. 1in three think we got the right mort- Wachovia’s board expressed under investigation for alleged by the move. Baker has sold boards. Easley said Thompson categories: integrity, leader- gage company,” he said in an its displeasure by eliminating money-laundering violations, some of his Wachovia shares will have an array of options. ship and teamwork. interview. bonuses for Thompson and his disclosed an expected $1billion over time and plans to give He’d like to tap him for a state Known as an approachable Mortgages go downhill lieutenants. In January, Smith charge over controversial leas- more away to charity, but he board. hard worker, his first task was said management and the ing transactions and revealed noted his family’s holdings Thompson received $1.45 to revive a company suffering While many financial insti- board shared blame for the an insurance loss that nearly have lost half their value with million in severance. He also indigestion from tutions were blindsided by the Golden West deal but told the doubled its first-quarter red the stock’s plunge in the past left with about $28 million in rapid-fire acquisi- depths of the housing collapse, Observer that he had confi- ink. two years. pension benefits, deferred tions under pre- Wachovia faced particular pit- dence in Thompson and his On May 8, the week after the Thompson was “in a situa- compensation and stock hold- decessor Ed falls. team. Wachovia Championship, the tion where he made some ings that have Crutchfield. In a Golden West’s so-called In his letter to shareholders board voted to hand Thomp- moves that didn’t work out,” since shed some massive restruc- Pick-A-Payment mortgages in February, Thompson said son’s chairman title to Smith, Baker said. “Sometimes in life of their value. His turing, he closed would end up souring faster the bank’s deals were on track, who was then lead indepen- that happens. We all make de- stock options are Crutchfield poor-performing than traditional mortgages. but he acknowledged the bad dent director. Thompson said cisions that don’t work out.” currently worth- units, slashed jobs These loans allowed custom- timing of the Golden West pur- the move let him focus on run- To assist with his retirement less. and sold off businesses. ers to pay less than the neces- chase. He reiterated a previous ning the company; analysts agreement, Thompson enlist- Hugh McColl His next stroke was a sur- sary interest, inflating borrow- statement that the bank’s divi- said it could mean he was on a ed the same lawyer who coun- McColl Jr., the former prising in-state merger in 2001 ers’ balances. They also were dend was safe. short leash. seled Lynch CEO Stan Bank of America with Winston-Salem-based concentrated in hard-hit Cali- Then came April’s stunning Four days later, Thompson O’Neal on his exit. Thompson CEO and a friend, said he Wachovia, which allowed the fornia markets. announcement. The bank dis- spoke at an investor confer- entered the agreement June 1, doesn’t know what Thompson company to cut costs and Next, in the second half of closed a first-quarter loss of ence in New York. Normally, the same day Wachovia’s will do next but expects he will chase more customers in 2007, a credit crunch whacked $393 million, cut its dividend these sessions feature relaxed board met in New York to in- fare “quite well.” wealthy markets. The deal car- investment banking opera- by 41 percent and announced a presentations by CEOs high- stall new leadership. “I think he’ll still be involved ried a relatively low price tag, tions at Wachovia and peers. costly cash infusion. Thomp- lighting their successes. Search begins for new CEO in our city,” he said. “He’s a ve- and First Union took Wacho- The bank took billions of dol- son said the move had become Thompson took a serious tone. ry important leader.” — STAFF via’s more respected name. lars in writedowns because the necessary because new data He admitted Wachovia had Early on Monday, Wachovia WRITER CHRISTINA REXRODE The combined company soon value of mortgage-related se- showed an acceleration of loan some “self-inflicted” wounds announced the startling news: CONTRIBUTED. unveiled a new marketing ta- curities had plunged. Profits losses. and said the bank would hire a Smith would become interim gline: “Uncommon Wisdom.” sank 19 percent to $6.3 billion in His credibility was gone Thompson frequently la- 2007, the first down year since with investors. beled Wachovia a survivor in a 2000. Some ‘self-inflicted’ wounds consolidating industry and Some analysts also were forged deals to absorb Pruden- worrying about another recent At the bank’s annual meet- tial Securities in 2003 and to Wachovia deal: last year’s $6.8 ing April 22, shareholders buy SouthTrust bank in 2004. But he passed on riskier pur- chases of FleetBoston Finan- cial and credit card issuer MBNA. Both companies end- ed up in the hands of Charlotte rival Bank of America. “I don’t think Ken ever re- gretted missing on those deals,” said a source familiar with the situation. “He wasn’t a deal junkie.” Instead, he started a credit card operation from scratch, built branches in California and hired offi- cers. But these moves were slow and expensive. At times, he expressed frustration that his stock price appeared to suf- fer because of Wall Street’s nervousness about another big deal. In the spring of 2006, Gold- en West approached Wachovia about a sale. The Oakland, Calif.-based savings and loan would give Wachovia an im- mediate beachhead in Califor- nia, plus a mortgage business that historically had fared well in tough economic times. Wachovia mortgage execu- tives were surprised because the bank had stayed away from the kind of risky loans that Golden West offered. The deal, approved by the board, came together in 11days and immedi- ately faced investor backlash because the housing market