Texas S&Ls; the No. 1 Villain as Thrifts Lose $3.8 Billion : $3.4 Billion Lost in Lone Star State

The nation’s troubled thrift industry posted a near-record $3.8-billion loss in the first quarter of 1988, most of it piled at the doors of 133 insolvent institutions in Texas, the Federal Home Loan Bank Board reported today.

“Three states in the Southwest accounted for nearly half of all insolvent institutions and 80% of the losses at all insolvent institutions in the first quarter,” said James Barth, chief economist at the bank board.

The states were Texas, Oklahoma and Louisiana, the heart of the nation’s troubled oil industry.

Barth blamed the recession in the Southwest for the magnitude of the problem. Texas alone, where 133 of 279 S&Ls; are considered insolvent, racked up losses of $3.48 billion in the first quarter, the lion’s share of the total industry loss.

“The Texas economy has suffered a great deal,” he said. “Real estate prices are plummeting, oil prices going down.

“When real estate prices are going down, it’s hard for even good management to control losses,” he said.

‘Things Look a Little Better’

Barth said the bottom of the dive may have been reached and April’s figures may show improvement.

“There are some preliminary numbers that (show) things look a little better for our nation’s thrifts,” he said. “The future depends on the course of interest rates and obviously the Southwest economy. And there are some indications there is a turnaround there.”

The comptroller of the currency, in a study of banking failures released Monday, said that the primary cause of such problems is mismanagement and that well-run institutions can survive troubled economic times.

The bank board put the total loss at $3.78 billion, a shade lower than the revised record $3.81-billion loss for the fourth quarter of 1987. The board previously reported the fourth-quarter loss at $3.2 billion.

Nearly 70% of thrifts showed a profit in the first quarter, but the huge losses by the insolvent institutions pulled the industry $3.78 billion into the red, the bank board said.

The 20 most unprofitable thrifts, most of them in Texas, lost $3 billion during the first quarter, and one institution alone, widely reported to be Sun Belt Savings of Houston, accounted for 20% of the total industry losses, Barth said.

‘Bifurcated Industry’

Of 3,118 savings and loan institutions nationwide, the 2,774 solvent institutions showed profits of $600 million, after losing $200 million in the fourth quarter of 1987. The 344 insolvent institutions posted first-quarter losses of $4.4 billion, up from $3.7 billion in losses in the fourth quarter of 1987, the board said.

The percentage of solvent institutions increased from 65% to 69%. And the number of insolvent S&Ls; under generally accepted accounting rules fell for the first time in two years from 518 to 504.

“We do have a bifurcated industry,” Barth said. “The solvents got better (in the first quarter) and the insolvents got worse.”

The bank board estimates that the cost of liquidating or merging the insolvent and failing thrifts would be about $22.7 billion. The General Accounting Office, a branch of Congress, has put the cost at $29 billion to $36 billion, while some private economists say it could go as high as $80 billion and require a taxpayer bailout.

Barth said about 40 insolvent institutions have been merged or liquidated so far this year.

Martin A. Regalia, chief economist of the National Council of Savings Institutions, said 1988 losses will probably top $8 billion and set another record.

However, he said, “there are a lot of things in these numbers to suggest that while the problem is terrible, it is not getting worse. It is bottoming out somewhat. I don’t mean to put a favorable light on a $3.8-billion loss, but there are some glimmers out there.”