U.S. Thrifts Reduce Losses: Best Quarter Since Early in 1987

Losses at U.S. thrifts narrowed sharply to $1.6 billion between July and September from the previous three-month period, the Federal Home Loan Bank Board said today, making it the industry’s best quarter in a year and a half.

The losses in the third quarter reported by 3,028 thrifts were down from a loss of $3.9 billion in the second quarter and a similar loss in the first quarter of 1988, James Barth, the bank board’s chief economist, said at a news conference.

It was the best quarterly performance for the troubled industry since the first quarter of 1987, when thrifts had profits of $98 million, he said.

“The improvement in the earnings picture reflects both actions taken by the Federal Savings and Loan Insurance Corp. against troubled thrifts and, more importantly, a substantial reduction of non-operating losses,” Barth said.

He said savings and loans also reduced provisions for loan losses, including a decline in write-downs for real estate.

Interest Rate Warning

Barth cautioned, however, that the recent rise in interest rates could hurt the industry’s future performance. High U.S. interest rates in the early 1980s contributed to the industry’s later troubles.

Net operating income for thrifts rose to $378 million in the third quarter from $224 million in the second quarter and an operating loss of $281 million in the first quarter.

Ninety percent of the industry was classified as solvent, according to a regulatory definition, and the 10% of thrifts that were insolvent lost $2.3 billion after losing $4.5 billion in each of the previous two quarters.

“The problems in the industry continue to be heavily concentrated in the Southwest, though in fewer thrifts than last quarter since more troubled thrifts have been resolved or stabilized through bank board actions,” Barth said.

Thrifts in Texas and four other Southwestern states lost $1.9 billion last quarter. In Texas alone, 114 thrifts were insolvent and lost $1.5 billion, down from $3.1 billion in losses in the previous quarter.