Down memory lane with the bankers…

Inspired by yesterday’s marathon hearing that saw 8 of the nation’s top banking titans subjected to hours of Congressional questions, I decided to do a little wandering through some filings from a few years ago, when things were decidedly rosier.

It didn’t take that long for me to come across this filing from Golden West, which was acquired by Wachovia. Of course, neither Golden West nor Wachovia exist any more, having joined the list of dead banks, so their former executives probably didn’t pay much attention to yesterday’s hearings. But John Stumpf, the CEO of Wells Fargo (WFC), which wound up with Wachovia was there and I’m pretty sure he would have gotten a kick out of this snippet of transcript which took place about a week after the Golden West deal was announced:

Matt O—Connor —UBS

Golden West has obviously done an amazing job managing credit risk. I was a little surprised that their FICO scores were, I think, in the 680, 690 range. Is it just that they are so good at what they do and it’s a different kind of customer base, or maybe FICO is not going to be as —?
Ken Thompson —Wachovia—CEO, President
Well, let me tell you how they do it. First of all, Herb and Marion Sandler would say if you are relying on FICO scores, you may be missing the boat. And their FICO scores average about 690. Ours would be 720 to 730. But they actually underwrite without a black box. So they don—t use a lot of black box kinds of things like FICO scores. They have underwriters in the geography on the ground who are actually looking at the credit application. They have their own appraisers; they—ve got about 1000 appraisers. So they have conservative appraisals that they are underwriting to. And then they underwrite to an indexed rate, not to the start rate on their mortgages. And as a result, they—ve ended up with about a 68% loan-to-value ratio, and that is on the price of the house at the time of the financing. You know, if you factor in the growth in housing prices, it is, I—m sure, lower than that. And then they touch the customer constantly in their servicing process.

So that is why if you go back to 1994, which was a housing depression in California, and look at Golden West’s track record, they simply had 18 basis points of charge-offs. And we feel very, very comfortable — number one, we’re not going to change anything about their process; we are going to adopt it. And we feel very comfortable that credit quality won—t be an issue at Golden West going forward. Even if housing prices drop fairly dramatically, there is plenty of room in their loan-to-value ratio. Yes.

It’s that final yes that’s especially delicious.

Image source: Noah Berger, Associated Press