Sick Thrifts Hold Back S&L Profits In 2d Quarter

WASHINGTON - Aided by a drop in short-term funding costs, the 2,216 private-sector thrifts earned $387 million during the second quarter of 1991, the Office of Thrift Supervision reported Thursday.

The strongest institutions showed modest gains in earnings, but their progress was offset by steep declines at troubled thrifts.

Second-quarter earnings at the 2,216 institutions still in private hands on June 30 fell 37% from the $610 million registered by 2,283 thrifts in the first quarter. The number of thrifts diminished as some failed in the second quarter.

Lion's Share in Real Estate

The second-quarter figure for only the 2,216 surviving thrifts was down 42% from the $673 million earned by those same thrifts in the first quarter, and up 49% from $259 million in the 1990 second quarter.

Of the 2,216, the OTS said 85% were profitable in the second quarter. They earned $1.42 billion, while the remaining 15% lost $1.03 billion.

OTS Director T. Timothy Ryan said loan-loss reserves tied to commercial real estate at fewer than 10 large, troubled institutions caused the lion's share of the losses. The OTS forced most of the thrifts to set aside reserves during examinations in the second quarter, he said.

|Inexorable Slide' Continuing

"The surviving sector of the industry is finally digging itself out, but the weak thrifts are continuing their inexorable slide," said Martin A. Regalia, chief economist for the National Council of Savings Institutions.

"The thrift industry continues to benefit from the drop in short-term interest rates," said Mr. Ryan. He noted that interest spreads have improved with the cost of funds at 6.94% in June, its lowest point in four years.

Also, he said, the government's cleanup of sick S&Ls have improved the earnings environment for healthy ones.

The OTS divides the industry into four camps:

* Group 1: 1,005 soundly capitalized, profitable institutions. They earned $627 million in the second quarter, compared with $567 million in the first quarter and $527 million in the second quarter of 1990.

* Group 2: 716 thrifts with low capital or inconsistent profits. They earned $476 million in the June quarter, up from $425 million in the first quarter and $276 million in the second quarter last year.

* Group 3: 377 undercapitalized thrifts. Losses climbed 70% to $320 million in the second quarter from $189 million in the first quarter and $217 million in the 1990 second quarter.

* Group 4: 118 thrifts earmarked for transfer to the Resolution Trust Corp. Their losses jumped to $396 million in the second quarter from $129 million in the first quarter and $324 million a year ago.

"They're not being effectively handled, and they're not getting better on their own," Mr. Regalia said of the sick thrifts.

The OTS data paint an incomplete picture of the thrift industry's financial condition, because they exclude the 193 thrifts controlled by the Resolution Trust Corp. The RTC is expected to issue those results next week.

The OTS also reported that 61 tangibly insolvent thrifts remained in private hands on June 30. They had aggregate assets of $50 billion, 5.3% of the industry total.

Mr. Ryan said the OTS is currently marketing 30 troubled thrifts under its accelerated resolutions program, and added that the RTC has earmarked funds to deal with "most of those institutions, if not all."

However, he added, that program will stall if Congress does not quickly allocate more funds for the S&L cleanup. "We're always holding our breath as to the availability of financing," he said.

The House Banking Committee's financial institutions subcommittee has scheduled hearings on RTC refinancing and restructuring for Sept. 12, 17, and 19.

PHOTO : T. Timothy Ryan Says rate decline is helping

PHOTO : Earnings Fall Off Source: OTS

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.