Wachovia Pays Up for West Coast Real Estate

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Maybe the management team at Wachovia (NYSE: WB) has been listening to a lot of the Dead Kennedys lately (they of the semi-famous song "California Uber Alles"), because it has seemed for a while that this large bank has had a serious longing to acquire a big California franchise. And where there's a will, and plenty of shareholder capital to throw around, there's always a way.

To that end, Wachovia has announced the acquisition of large savings and loan Golden West Financial (NYSE: GDW). Wachovia's per-share offer, which was originally a 15% premium to Golden West's closing price on Friday, is a mix of stock (1.051 shares) and cash ($18.65).

I've written on Wachovia plenty of times, so let's take a quick look at Golden West. As I said, it's the second-largest thrift in the country, with more than $119 billion in loans and $60 billion in deposits on the books at the end of 2005. Golden West is quite specialized, though; virtually all of its loans are adjustable-rate mortgages, and nearly 62% of its loans are in California.

I'm not really all that surprised that Wachovia is buying a West Coast banking firm. It has wanted to both get into California and make a big deal for a while now. I had just figured that it might be more interested in Washington Mutual (NYSE: WM) or Wells Fargo (NYSE: WFC), or perhaps a piece-by-piece build with acquisitions of smaller companies like Umpqua (Nasdaq: UMPQ).

That's not to say that Golden West is a bad company; it has attractive returns on assets and equity relative to rivals and an exceptional efficiency ratio. What's more, the price paid isn't that unreasonable -- a single-digit premium to what I consider fair value. It's just that this seems like a somewhat risky asset for Wachovia to buy, especially because the return on assets has been falling and the company has been relying more on more expensive funding of late.

I'm not sure that I'd rush to sell Wachovia just because of this deal. By the same token, it wasn't my favorite big bank investment idea to begin with, and this deal doesn't help. All in all, I'm happy to say that there are still some worthwhile bank ideas out there if you take the time to look.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).