From 1989 to 1992, thrift industry consolidation involved the weeding out of weak or insolvent companies. This is going to change in the next couple of years.
Consolidation is likely to occur among the industry's best-capitalized institutions: the top 5% of stock thrifts. They have tangible capital ratios over 8.5% and very low levels of nonperforming assets.
Several factors suggest the altered course of events:
* The supply of branch networks available from the Resolution Trust Corp. has declined considerably over the past year as the bailout has wound down. The RTC had only 53 institutions in conservatorship as of early June.
Another 100 had been identified for possible seizure. Investor demand for these opportunities should spill over into the public sector of the industry.
* Any takeover binge should receive added impetus from the 150 S&Ls that converted from the mutual to stock form of ownership over the past 2 1/2 years.
Many of these have desirable takeover characteristics: strong capital ratios, excellent asset quality, stock prices languishing around 70% of book value, and managements willing to sell after converting.
* Regional banks, the largest group of potential buyers, have the currency needed to carry out takeovers. Standard & Poor's index of major regional banks stood at 151.83 on July 29, down 3.8% from the peak in early May but still well above the yearend 1991 and 1990 figures.
Besides the usual consolidation motives, acquirers would view such a takeover financed with stock as a means to raise capital. Bank regulators count stock issued in acquisitions as Tier I capital. Thrift regulators count the new stock as tangible capital.
* The modest rebound in residential real estate and the easing of mortgage loan problems should induce thrift shopping. Citizens Financial Group's February 1990 bid for Bank Worcester Corp. was withdrawn when Bank Worcester's nonperforming assets more than tripled.
Thus, future takeover targets will to a significant extent come from the ranks of the industry's best capitalized. Consider the fate of the 10 stock thrifts in January 1989 with the most excess capital.
Of these institutions, three were acquired Long Island City Financial of New York, Maury Federal Savings Bank of Tennessee, Western Carolina Savings and Loan of North Carolina), two are in the process of being acquired First American Savings of Pennsylvania and First Federal of Lenawee, Mich.), and one was the object of an aborted bid (Lakeland Savings Bank of New Jersey).
Buyers seemed particularly drawn to capital wealth:
* These takeovers occurred during 1991 and 1990 when a scant 30 thrifts in the stock sector were acquired out of a universe of about 350 institutions.
* The takeovers were in different parts of the country, implying that an institution's capital was more important than local real estate market conditions.
For example, in the Federal Housing Finance Board's District 2 - comprising New York, New Jersey, Puerto Rico, and the Virgin Islands - seven acquisitions, attempted bids, or proxy battles over the 1989-91 period involved the most strongly capitalized.
The list of capital-rich companies in District 2 includes two in New York State: Home and City Savings Bank, Albany, and Long Island City Financial, Long Island City. Also on the list are three New Jersey companies: Montclair Bancorp, Montclair; Mayflower Financial, Livingston; and VSB Bancorp, Closter.
Mr. Huberman is a savings and loan specialist with Standard & Poor's Corp., New York.