Magazine article American Banker

Upgrades for Golden West despite the Rate Outlook

Magazine article American Banker

Upgrades for Golden West despite the Rate Outlook

Article excerpt

Golden West Financial Corp.'s solid fourth quarter has prompted several analysts to raise their price targets for its stock, though rising or even stable rates could hurt the thrift company's main revenue source, mortgages.

Six of the 16 analysts covering the stock have raised their estimates for the year, driving up the median estimate by 10 cents, to $6.46, according to Thomson First Call.

Some analysts expect earnings to keep rising at the Oakland, Calif., company even when homebuyers stop rushing to refinance their mortgages or take out new ones.

Adam Compton, an analyst at Keefe, Bruyette & Woods Inc., initiated coverage on Golden West at "outperform" on Jan. 23, the day the thrift company reported earnings.

Some people, he said, think its revenue and earnings growth "will stop when the mortgage market slows down and/or rates start to go up." But Mr. Compton said he thinks the $68 billion-asset parent of World Savings Bank can keep fattening earnings, despite some margin compression, when rates start to rise.

That is because Golden West, unlike most mortgage lenders, makes mostly adjustable-rate loans, which it keeps in its portfolio. When rates start to rise, borrowers tend to like adjustables.

"In a normal scenario ARMs become more attractive," Mr. Compton said Friday. That would give Golden West "decent revenue growth," he said.

Even with interest rates on fixed mortgages at record lows, Golden West has managed to produce record earnings from adjustables. …

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