Wachovia could prosper from mortgage downturn: paper

Shares of Wachovia, the fourth-largest U.S. bank, have lost 16 percent since the acquisition last September. Critics charge it overpaid for Californian lender Golden West amid fears a five-year housing boom had crested.

But the Journal's "Heard on the Street" column said on Thursday the bank could now take advantage of the mortgage-market downturn to build its lending business.

The bank's current valuation, with shares trading at a 12-month trailing price-to-earnings ratio of 10.23, at a discount to peers, indicate investors are expecting large mortgage losses, it said.

But based on Golden West's long track record of few bad loans those fears may be overblown, according to the Wall Street Journal report.

"It's cheap," Banc of America Securities banking analyst John McDonald, told the newspaper, rating Wachovia as a "buy."

A spokesperson for Wachovia could not immediately be reached for comment.

Wachovia shares gained close to 1 percent to close at $49.70 on the New York Stock Exchange on Wednesday, after the company a day earlier raised its quarterly dividend.

Last month Wachovia reported it had set aside $179 million in the second quarter for bad loans, triple the year-earlier level. Its nonperforming assets rose $341 million from March, with much of the increase from residential mortgage loans at the former Golden West Financial Corp.

At the time, Wachovia Chief Executive Ken Thompson said: "We're going through a little pain with it now, but I think a year out, 18 months out, two years out, we're going to be very happy that we did this (Golden West) deal."