Golden West Financial Corporation

1912–1981

Golden West Financial Corporation, the third largest savings and loan association, or thrift, in the United States, grew in stature due to the leadership of husband-and-wife team Marion and Herbert Sandler. Over a period of nearly four decades, the pair took a two-office operation with $38 million in assets to one with 450 locations and assets of $58 billion. One of the largest mortgage lenders in the country, Golden West focuses primarily on individual home buyers.

Striking Gold: 1960s-70s

Marion and Herbert Sandler formed a holding company, Golden West Financial Corporation, in 1963, to acquire Oakland, California-based Golden West Savings. The couple financed the $4 million deal primarily with bank loans; additional funds came from Marion's family money. The two-office operation had $38 million in assets at the time of the purchase. Golden West Savings had been in operation since 1929. In 1975, another California firm, World Savings, merged with Golden West Savings.

World Savings, established in Madera in 1912, had become a subsidiary of Trans-World Financial Corporation in 1959. Trans-World also acquired Guardian Savings and Loan of Colorado that year, renaming it World Savings of Colorado. The Sandlers combined the savings and loan subsidiaries of World Savings and Golden West and began operating under the World Savings name. Comprised of 107 offices in California and Colorado, the new entity had assets of $1.8 billion.

Federal legislation changes in the 1980s expanded business opportunities available to savings and loans (S&Ls). The financial institutions were given the freedom to set their own interest rates, hitherto held under a ceiling by regulators. In addition, S&Ls were allowed to offer customers checking accounts and expand their loan activities, both consumer and commercial. The following year, in 1981, the right to originate adjustable rate mortgages (ARMs) was granted. World Savings established ARMs as its principal mortgage instrument. Regulation changes were not the only things afoot in the S&L industry as the new decade began.

By 1981, Marion and Herbert Sandler's S&L topped 130 branches with $5.2 billion in assets. The fifth largest publicly held S&L was notable for its strong performance record. Earnings per share had increased at a rate of 24 percent a year since 1966, according to a 1981 Fortune magazine article by A.F. Ehrbar.

The Sandlers, wrote Ehrbar, had historically avoided unnecessary risks. Marion, a former Wall Street S&L analyst, was company president and held the reins of the liability or deposit side of the business. Herbert, a real estate attorney, was chairman and oversaw the lending operations. The married couple shared the title CEO. In addition to their conservative business practices, Ehrbar attributed the company's stellar growth to the fact that the Sandlers were "uncommonly aggressive competitors."

The couple financed the $4 million deal primarily with bank loans; additional funds came from Marion's family money.

1980–1987

Beginning late in the 1970s, however, some of that conservatism seemed to take a back seat to more speculative ventures. Adept at anticipating interest rate trends, Herbert Sandler had adjusted their business mix accordingly, making fewer mortgage loans when interest rates were low and more when they were on the rise.

Sandler also tried his hand at investment securities, putting borrowed money and cash into those instruments instead of writing mortgage loans. The balancing act helped Golden West extend an impressive string of year-to-year earnings growth even as, industrywide, S&Ls reported declining profits.

Volatile Decade for the Industry: 1980s

Golden West and its competitors' operating revenues were hit hard by high short-term interest rates in 1980. It was a dreadful year for many S&Ls: profits and stock values plummeted. Golden West managed to post slight quarterly increases, though some were as small as a penny a share. Consequently, its shares maintained or rose in value. According to Ehrbar, gains made in heavy trading of short- and intermediate-term securities, such as Treasury bills and notes, and mortgage-backed certificates, instruments similar in some ways to bonds, compensated for declines in operating results.

"In other words, the Sandlers may have created the illusion of rising profits by closing out hedge positions or selling securities on which they had capital gains, while hanging onto the ones in which they had capital losses," wrote Ehrbar. He noted that the move was legal and allowable under generally accepted accounting principles, but because S&Ls were able to keep details of such transactions private, shareholders and other interested parties were in danger of being left in the dark about the true status of a company's financial health. As the decade of the 1980s began, some S&Ls had begun to fall under the weight of failed trading ventures. The Sandlers could not totally sidestep the industry woes; during 1982, company stock traded as low as $3 per share.

World Savings grew through expansion in 1982, acquiring bank holding company First S&L Shares. The deal brought in 48 new branches and $1.3 billion in assets from Majestic Savings of Colorado and Commerce Savings of Kansas. In 1985, two additional offices and $272 million in deposits were added with the purchase of Texas-based Bell Savings Banc.

By 1987, the Sandlers had grown their business to 195 offices with assets of nearly $13 billion. The couple held about 8 percent of the stock, valued at around $75 million. The operation was one of the most profitable thrifts in the country. Earnings per share had grown an average of 30 percent a year since 1980. Stock was trading at around $30 per share. Golden West succeeded, according to a November 1987 Forbes article, because they had stuck to what they knew best and ran a highly efficient operation. While other thrifts had expanded into commercial, construction, real estate development, and consumer lending, Golden West held to residential mortgage loans, which made up 96 percent of its portfolio. Expenses were kept in check. The corporate offices made do without a receptionist, relying on visitors to announce themselves via a telephone. The total number of employees was lower than comparably sized thrifts. Managers knew that keeping at or below budget factored in significantly during bonus time.

1987–1995

Although the Sandlers kept a meticulously close watch on how employees and branch offices served their customers, they held back on offering new products and services others in the industry were quick to promote. World Savings had no automated teller machines, for example. When compared with the competition in other ways, World Savings exceeded industry averages in return on equity and return on assets. Its ratio of nonperforming assets was 0.62% of total assets in 1987, or less than half the average rate for a healthy thrift operation. S&L giant H.F. Ahmanson's rate, for example, was 1.58%, according to Forbes.

Even though they were slow to follow some industry trends, the Sandlers kept abreast of one that was creating bigger and bigger competitors: consolidation. To keep up, they began opening small loan production offices in new territories, including New Jersey, Florida, and Virginia, and were on the lookout for opportunities to buy other financial companies.

The next year, 1988, proved to be bleak for S&Ls. By October, 103 thrifts had been closed or merged. The total number of S&Ls that failed during the 1980s would top 850. But Golden West continued to thrive and ended the decade with $19.5 billion in assets, savings offices in six states, and lending operations in 18 states. In addition, a second subsidiary, Atlas, was established in 1989 to provide investment products and services.

Golden West Continuing to Shine: 1990s-2000s

The 1990s started much as the 1980s ended: S&Ls were still hurting, particularly in five states. The California, Texas, Arizona, Kansas, New York, and New Jersey markets accounted for a lion's share of the total industry's losses early in the year. According to a 1990 San Francisco Business Times article, troubled real estate markets and investment debacles contributed to the problems. The Sandler operation, though, continued to stay the course, maintaining its traditional offering of savings deposit accounts and single family mortgages.

World Savings moved on its expansion plans in 1990. It gained $457 million in assets and six offices when it purchased New Jersey-based Community Federal Savings. World headed down the coast the next year, acquiring a failed Florida operation. Beach Federal held $1.5 billion in assets and 16 offices. Also in 1991, World entered Arizona, purchasing Security Federal Savings' three branches and $148 million in deposits. As 1992 began, Golden West Financial Corporation held assets of $25 billion. Return on equity over the past five years had averaged nearly 20 percent. The branches of World Savings and Loan numbered 230.

Although the 300 largest U.S. thrifts gained ground in 1994, the industry as a whole declined. According to a May 1995 American Banker article, some in the industry maintained that the S&Ls were being hurt by downward pressure on mortgage rates caused by the activity of huge secondary market players, Fannie Mae and Freddie Mac. The government-sponsored enterprises (GSEs) were intended to help make home mortgages affordable for low- to middle-income buyers.

1994–2001

Mid-sized thrifts were hurt the most by thin profit margins, making them targets for buyout by the larger players. The three largest thrifts--all California-based--increased their assets in 1994: top-ranked H.F Ahmanson & Co.'s Home Savings of America by 6 percent, to $53.4 billion; number two ranked Great Western Bank by nearly 11 percent, to $39.7 billion; and third-ranked Golden West Financial Corporation's World Savings by 10 percent, to $31 billion. Even the biggest players saw

By 1996, nearly 30 years since the company went public, Golden West Financial's assets had reached $35.8 billion, and the company operated in nearly half the states. Herbert and Marion Sandler, both in their mid-60s, were subjects of speculation: Would the golden couple retire? In a July 1996 American Banker article Barton Crockett asserted that some of the conjecture was driven by their involvement in outside interests, including international human rights causes. In addition, some competitors were wondering if the pair had lost their golden touch. Return on equity during 1994 and 1995 had been below its historic average in the mid-teens. The Sandlers held 18 percent of the company, valued at the time at around $566 million.

Buyout speculation was running rampant in California in 1997. The two largest thrifts were embroiled in a hostile takeover bid. Golden West, which had been generating growth internally, seemed to be outside the fray. The company's traditional mortgage market, efficient operation, and dearth of new technology made it a less attractive buyout target. Consolidation continued into 1998, and the purchase of Ahmanson by Seattle-based Washington Mutual Inc. made Golden West Financial the largest independent thrift in California.

Golden West had golden days on Wall Street in 2000. "There is a love affair going on with this stock," said Thomas Hain at Lehman Brothers, in a July 2000 American Banker article. "They are in a sweet spot right now in the mortgage business, and that is driving extraordinary earnings compared to other thrifts. They are the best ARM lender, and they have superior interest rate management."

But the love affair ended abruptly by year-end. Investors pulled back from ARM-dependent thrifts when signs of a new refinancing boom surfaced. ARMs' initial low interest rates and low down payments drew many first-time buyers, especially those without funds for other types of loans. But as interest rates for fixed loans improved, those buyers would switch over, diminishing thrifts' ARM portfolios.

The roller coaster ride continued for the thrifts in 2001, and ARM demand appeared questionable for the year to come. The company's mortgage lending unit produced $20.8 billion in loans in 2001, the vast majority from ARMs. But Golden West Financial Corporation, still led by Marion Sandler, as chairman and CEO, had a history of producing strong results even in difficult environments.