For the eighth year in a row, the number of thrifts has declined. According to an American Banker survey, the drop was almost 7% in the year ended June 30. At the beginning of that period, there were 2,235 thrifts. By the end, there were 2,081. In contrast, the thrift tally was 3,292 at the end of 1986. Analyst Charlotte A. Chamberlain of Wedbush Morgan Securities, Los Angeles, called the shrinkage a sign of things to come. "I think that that's a very telling number, and that trend will continue and accelerate," Ms. Chamberlain said, particularly once Congress resolves the potential disparity in deposit insurance rates for banks and thrifts. Thrifts, of course, are not alone. The number of commercial banks fell a little more than 5%, to 10,168, in the year ended June 30. But thrifts are dwindling faster, even years after the worst of their credit crisis. The reason lies in the industry's disappointing earnings, according to analyst Richard Strauss of Goldman, Sachs & Co. Shareholders want higher returns and are pushing thrifts to merge or be acquired, he said. Both banks and thrifts had credit problems in the 1980s, but banks cleaned up faster and branched out into new lines of business, he said. Their earnings recovered more quickly than those at thrifts. Many thrifts are still dragged down by the burden of bad loans and the constraints of being primarily low-margin mortgage lenders, Mr. Strauss said. The growth of mortgage securitization, and the resulting ascendancy of mortgage banks, also hurts earnings prospects at thrifts, he said. Thrifts are being acquired by capital-rich banks that want to boost loan growth and achieve economies of scale, said Jonathan Gray of Sanford C. Bernstein & Co., New York. As banks plunge more deeply in the mortgage business, thrifts become a natural fit, he said. "Banks no longer will turn up their noses at the acquisition of a thrift because it's primarily a home mortgage lender," Mr. Gray said. Other fundamentals of the mortgage business are also fueling the trend toward consolidation, according to Ms. Chamberlain. Slower economic growth and the aging of the baby boomers should dampen demand for home loans, she said, adding that the need for expensive mortgage technology means lenders will have to be bigger to compete. Two other indicators of thrift activity increased only slightly in the year ended June 30: *Deposits at the top 300 thrifts increased by 0.3% to $547.8 billion. Mr. Gray of Sanford C. Bernstein said thrifts were avoiding deposit growth in favor of other funding sources because of the potential disparity in bank and thrift insurance premiums. *Assets at the top 300 thrifts increased 3.6% to $781.6 billion. The growth came as rising interest rates created a favorable market for adjustable rate mortgages, which thrifts like to put in their portfolios. However, Mr. Gray described the asset growth as "pathetic." "It's like having an automobile that you never drive above second gear," he said. While thrifts have mostly been acquired by banks on the East Coast, mergers among thrifts are more common in the West, Ms. Chamberlain said. Many small thrift mergers are driven by investors who want to "double- dip" - that is, combine with other small institutions in the hope of being purchased by banks later for lucrative prices, she said. But analysts like Mr. Gray want to see thrift mergers on a different scale. One possibility would be the combination of such industry giants as Home Savings of America, Irwindale, Calif., and Great Western Bank, Chatsworth, Calif. Other candidates include World Savings and Loan Association, Oakland, Calif., Glendale Federal Bank, and California Federal Bank, Los Angeles. Such deals would create substantial cost savings, but have not materialized so far, Mr. Gray said. "If people running these companies would only learn to talk to one another, their shareholders would be much better off," he said.

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