San Diego Business Journal

It's the fourth-largest lender in the nation, yet Wachovia Corp. doesn't have much name recognition in this area. That's likely to change early next year.

The Charlotte, N.C.-based company with more than $532 billion in assets is buying two companies that have operations in San Diego: AmNet Mortgage Inc., a mortgage bank based here, and Westcorp Inc., an Irvine firm that owns WFS Financial and Western Financial Bank, which has three branches in the county.

Both acquisitions announced in early September have yet to close but are considered done deals because insiders hold so much of the acquired companies' stock.

While Wachovia has operations in other parts of California, the recent purchases signal a more aggressive push and part of a long-term strategy to diversify its fast growing business lines.

"They've been very aggressive in their movement west," said Tom Stickel, the chairman of Coronado First Bank. "They've waded into the water in the past, but now they're jumping in."

Stickel is familiar with Wachovia through Onyx Acceptance Corp., an Irvine auto lending company he chaired until January, when Capital One Auto Finance Corp. acquired it for $191 million.

Wachovia's $3.5 billion purchase of Westcorp, a public company whose majority owner is San Diegan Ernest Rady, entails buying WFS Financial, an auto lending company, and Western Financial Bank, a savings and loan with 19 branches.

Apparently size doesn't mean everything in San Diego financial circles; Wachovia's impending entry into this market has hardly caused a blip on the radar screen.

"We don't think of them as a threat or a competitive force," Stickel said. "We don't deal in billions of dollars, but in millions of dollars."

Gary Lewis Evans, the chief executive officer of the Bank of Internet USA, an online savings and loan based here, said, "We already have the Wells Fargos and BofAs in town, so one more big player won't make that much difference."

Spokesmen for other, outside mega-banks doing business here, including Wells Fargo, Bank of America, and Washington Mutual Bank, all declined to comment on Wachovia's increased presence in Southern California, and how it might affect their business.

Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners, who covers Wachovia Corp., said the Westcorp acquisition will increase the scale of Wachovia's auto lending business and was in line with the company's strategy to buy companies that would be accretive to earnings within a year.

"The entry into California comes earlier than we expected from WB (Wachovia's stock ticker) although we do not believe it was the impetus for this deal," Fitzsimmons wrote in a report. "Management emphasized what it expect to use the 19-branch Orange County franchise of WES (Westcorp's ticker) to observe and learn about the California market."

Local bankers said that given Wachovia's size and its stated strategy of growth, the move here is understandable.

"They're definitely moving into Southern California and establishing a foothold here, and it's more efficient to buy a company than starting from scratch," said Hans Ganz, the CEO for Pacific Trust Bank, a Chula Vista savings bank with about $660 million in assets. "From their perspective, it's a good move; it's a good market to get into."

Ganz said he isn't worried about whether Wachovia may undercut Pacific Trust in terms of lower interest rates on loans and higher interest rates on deposits.

"We have better service and a good reputation in this community, so what they're doing isn't a concern," he added.

Few Changes Initially

The word from Charlotte, in terms of plans for its new companies is, don't expect many changes.

"We're planning to keep all the financial centers (of the new companies), and we're going to be moving slowly," said Wachovia spokeswoman Ferris Morrison. "We will take a measured approach to what we're doing."

In addition to Western Financial Bank's offices, Wachovia is buying AmNet Mortgage, a publicly traded mortgage bank on track to make $13 billion in home loans this year.

Wachovia agreed to pay $10.30 per share or an aggregate $83 million for AmNet in a deal announced Sept. 13. AmNet shareholders are expected to approve the purchase at a special meeting Dec. 8.

Judy Berry, AmNet's chief financial officer, said AmNet customers and employees should see few changes after the acquisition is completed, probably in the first quarter of 2006.

AmNet would become a wholly owned subsidiary of Wachovia Bank and operate under the bank's Fixed Income Division. While there may be some redundancies that result in new alignments, the vast majority of AmNet's 1,000 employees, including some 250 in San Diego, should be retained, Berry said.

AmNet Chairman and CEO John Robbins, along with three other top company executives, have signed three-year contracts with Wachovia and will remain in San Diego.

Wachovia originated more than $21.7 billion in mortgages last year, and some $6 billion during the second quarter of 2005, according to its Web site.

In terms of its auto lending, Wachovia had about $3.7 billion in loans outstanding last year, making it the 28th largest in the nation among lenders unaffiliated with auto manufacturers, such as GMAC. WFS Financial had about $11 billion in auto loans, making it the 15th largest, according to RMG Research, the research arm for Royal Media Group, which publishes Auto Finance News.

Soon To Be No. 2

Following the Westcorp acquisition, Wachovia would become the second-largest auto lender in the nation among independent lenders.

Wachovia's auto lending is considered as prime, while WFS loans are mostly non-prime, so the deal should diversify Wachovia's customer base, said Marcie Belles, senior editor of Auto Finance News.

"This gives Wachovia access to more dealers and more borrowers," she said.

HSBC Auto Finance, a division of HSBC North America that's based in San Diego, would not reveal its portfolio, but RMS estimated the total at $10 billion last year. The company employs 1,140 full-time workers here.

While Wachovia asserts its plans are to retain the current business models and do not include large-scale changes, bankers and others familiar with past transactions say expect some job losses and consolidation down the road.

Says Stickel, "In my personal experience, that's what most acquirers say (keep things intact), but it's not what most acquiring companies do."