WPP: 2009 Will Be ‘A Very Tough Year’
October 30, 2008 by admin
Analysis by Martin Sorrell WPP CEO
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I have just watched the recent interview you conducted with Herbert Sandler, former CEO of Golden West Financial. Golden West was my employer for over 26 proud years, During those years, as a Senior Manager in the company hierarchy, I had a fairly close view of the Sandlers’ business philosophy and practices, and feel compelled to comment on the situation that has surrounded both Golden West and the Sandlers for sometime now.
I am glad that Mr. Sandler has finally spoken out about our former company and its lending practices. Golden West has been unjustly characterized as a poster child behind the mortgage meltdown by “industry observers” who don’t understand how lending operations work, nor do they understand how sound the origination, appraisal, and underwriting practices were at Golden West for so many years. I can say that because, in my role at Golden West for 22 of the 26 years I was there, I was in a position to evaluate our loan quality very closely, since my responsibilites involved managing the nationwide disposition of the minimal number of troubled loans that we acquired as REOs. Most of the time, I was the Maytag Repairman of our company, since our REO inventory and losses were the envy of the industry. A knowledgeable observer knows that Golden West’s track record over the 40 years of its existence, measured by virtually any lending quality or financial performance standard, was exemplary. In the last few years, the performance of the Golden West portfolio has been adversely affected PRIMARILY by the excesses and greed of others in the surrounding financial community. Because other lenders overburdening borrowers with too much debt through risky and irresponsible products, underwriting and appraisals, tremendous downward pressure has occurred on property values and jobs that feed off the housing industry. There was a giant fraternity party for several years, and this is the inescapable hangover. I believe you will find that Mr. Sandler was one of the few people who called for rational lending when things were at their peak. But, as we all know, it’s hard to get people to slow down when they are flush with cash, getting pats on the back from shareholders, and looking at the world through rose colored glasses.
Of course, the decline in property values and job losses have affected the borrowers in Golden West’s portfolio, who also need to work and who depend on properties maintaining their values. “Experts” should know that the lending practices of Golden West ALWAYS emphasized reasonable risk management since we were a portfolio lender that lived with our decisions, rather than offloading them to investors. That is not to say that our approach was perfect, but our lending approach minimized risk and downstream problems by thoroughly training (and cross training) our personnel in product knowledge, underwriting, appraisal and customer care. In that regard, any “failure” i.e. delinquencies or REOs were scrutinzed using detailed post mortems involving those (these people were invariably long term, dedicated employees) that were involved in the original decision to lend. Again, since we lived with our decisions, what was there to gain by creating unreasonable risk in the company’s income stream? That was our lifeblood of existence.
As a result, the culture of the company reflected the Sandlers’ values of doing the right thing for the customer at all times while remaining fiscally responsible to our business objectives and shareholders. Our culture was intensely unselfish, ethical and apolitical, and the Sandlers always espoused business ideals that were of the highest quality. Employees or tactics that did not reflect these ideals did not last long in our environment. This is not a Senior Manager waxing eloquently down memory lane for posterity, this is the way it actually was.
The Golden West saga should be characterized as having been one of the great enterprises in American business history, not reduced to distasteful comedy on Saturday Night Live. I only wish that the Sandlers’ business values and practices could be applied to some of the national problems we face now. I am glad that Mr. Sandler has decided to fight back to correct the misperceptions that exist out there about Golden West, and I would be happy to join his army of supporters.
A former senior manager
On Monday, November 3rd, I sent in a comment using this section regarding your recent interview with Herb Sandler of Golden West Financial. I received no confirmation that it was received by you or published. Can you please advise?