For Ken Thompson, who was ousted as CEO of Wachovia over the weekend, the financial world had become a place where people forgot about risk.
“I’ll take you back to the year 2000, when the tech bubble burst and the stock market plummeted,” the now-former head of the nation’s fourth-largest bank told students at the University of Virginia’s Darden School of Business in September.
“At that time, the Federal Reserve lowered rates to calm the market and make it easier for businesses and people to spend money,” Thompson continued. “Perhaps a little too easy. . . . There was an explosion in global liquidity. . . . There was so much money floating around looking for yield that people also forgot what risk was.”
Thompson’s remarks seem almost prescient, coming weeks before Stanley O’Neal at Merrill Lynch and Charles Prince at Citigroup got the boot for billions in bad mortgage bets.
But these comments also came a year after Thompson led his Charlotte, N.C.-based empire into its fateful $25 billion acquisition of Golden West Financial.
Wachovia bought the aggressive California-based mortgage lender at the peak of the home- lending boom. Now it’s taking billions in write-downs to cover bad loans. Its stock has lost more than half its value over the past year. And it recently recorded a $708 million loss for the first quarter.
Wachovia has suffered a string of other disasters as well, including a $144 million settlement with the Office of the Comptroller of Currency. The OCC alleged the bank basically allowed telemarketers to come in and steal millions of dollars from elderly customers.
Allegedly allowing thieves to steal from little old ladies isn’t enough to get a long-standing CEO fired. CEOs are generally safe until one of their deals results in billions in losses. That’s why most observers point to the Golden West deal as the capstone on Thomp son’s 32-year banking career.
Didn’t he see it coming?
“The high level of demand for mortgages drove many mortgage lenders to make loans that were inadequately collateralized and poorly structured,” Thompson pontificated in September. “In many ways, all financial bubbles are alike. They start with too much cash. Then investors get carried away and make poor investments. Risk comes home to roost, people lose money, and there’s the inevitable market disruption.”
I e-mailed Thompson’s speech to University of Denver finance professor Mac Clouse to see whether he found it as amusing as I did.
“In September, we knew some big things were about to hit,” Clouse reminded me. “He’s saying all this stuff, almost as though he doesn’t have any idea that his time was coming.”
As though it were a blessing …
“Price declines and volatility may be unpleasant, but they also bring opportunity,” Thompson said. “Even as we ride out the storm, you can already hear the voices of optimists who are finding the bargains that will be tomorrow’s winners.”
Unfortunately, you can’t line up “tomorrow’s winners” when you are today’s loser.
Al Lewis: alewis@denverpost.com
