The thrift industry lost $5.4 billion in the second quarter, its second-largest loss ever, as nonperformers rose to a record $40.5 billion as of June 30, the Office of Thrift Supervision said Wednesday.

OTS Director John Reich tried to put the results in perspective. "Eventually, things are going to improve," he said. "I believe our industry is structurally profitable, and I think we're somewhere in the midpoint ... of this cycle, and I think we have the capital reserves and our institutions are doing what they need to be doing to face the reality of the future losses in their portfolios."

Still, Mr. Reich did question the industry's capital-raising prospects. "I'm comfortable where we are today, but I do have a concern about the ability to raise capital in the short term."

To put the second-quarter loss in context, the industry lost $627 million in the first quarter and a record $8.8 billion in the fourth.

The last time troubled assets approached the second-quarter level was in 1990, when they were $39.1 billion at yearend. Still, as a percentage of total assets, nonperformers are lower today. The second-quarter rate was 2.68%, compared with 3.8% at the end of 1990.

Provisions for bad loans drove the losses. The OTS said thrifts socked away a record $14 billion in the quarter, and they posted a record $5.65 billion of net chargeoffs.

In the 12 months that ended June 30 mortgage originations fell 34% from a year earlier, to $128.3 billion.

The second-quarter percentage of noncurrent one- to four-family home loans increased 97 basis points from the first quarter, to 3.82% of assets, while the noncurrent construction and land loan rate increased 117 basis points, to 7.18%.

The industry's return on average equity was negative-16.05% in the second quarter, versus negative-1.83% in the first quarter.

The number of problem thrifts increased by five, to 17. The OTS would not say how many assets these struggling thrifts hold.

As of June 30 the OTS supervised 829 thrifts with $1.51 trillion of assets. A year earlier it supervised 836 thrifts with $1.5 trillion.

The OTS reported that 98.4% of all thrifts holding 97.6% of the industry's assets exceed regulators' "well-capitalized" standards.

"I look for glimmers for hope, and among the glimmers that exist are the fact that I think today over 75% of thrift institutions today are structurally profitable," Mr. Reich said.

The agency provided more details on the IndyMac Federal Bank failure, the industry's largest. The institution had a Camels 2 rating before an examination in January, when its Camels rating fell to 3. The OTS downgraded that rating to 5 in June. The Pasadena, Calif., thrift failed July 11 and is now being operated by the Federal Deposit Insurance Corp.

The OTS defended its supervisory performance, saying it has issued 27 formal enforcement actions this year after issuing 16 in all of last year.

On Tuesday the FDIC said the broader banking industry's profits fell 87% in the second quarter, to $5 billion.

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