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Analysts question Wachovia's wisdom

Wachovia's imminent takeover of Golden West Financial has provoked negative reactions from both financial analysts and investors today.

Heralded by some as one of the biggest banking takeovers of recent times, the merger between the two US-based companies was intended to create a financial services institution to rival the US's big banking players such as Citigroup and JPMorgan Chase.

However, many analysts believe that the acquisition of Golden West Financial, a mortgage lender, is a poor strategic move for Wachovia, the US's fourth largest bank.

With the current slow-down in the US housing market predicted to continue, analysts are concerned as to how successful the company can be in the coming months, and they also believe that the $25 billion price tag is too great.

As analysts downgraded Wachovia's stock in their estimations yesterday, investors reacted with a 6.6 per cent drop in Wachovia share prices, the biggest for the bank since late 2002.

In contrast, shares in Golden West Financial rose 6.2 per cent.