Thrifts Said to Be Using Insured Funds to Buy Junk Bonds

Taxpayers face yet another risk of a crisis in the savings and loan industry because many thrifts are using federally insured deposits to buy junk bonds, a financial analyst said today.

Alex Sheshunoff & Co. said as of March 31, there were 183 S&Ls; that owned $14.4 billion in below investment grade debt securities. Ninety-one percent of that amount--$13 billion--was held by just 30 institutions. Twenty-one of those thrifts had from 5% to 44% of their assets coming from brokered deposit funds sold to them by money brokers.

“Quite simply, it appears that 9 of the 10 largest holders may in effect be using brokered deposits to fund all of the $9.7-billion worth of junk bonds they hold,” said Alex Sheshunoff, company president. “Obviously brokers are finding selling junk bonds to S&Ls; a very attractive business--they can potentially make a commission selling the S&Ls; both the brokered deposits and the junk bonds.”

Of the nation’s 30 largest S&L; holders of junk bonds, eight Southern California thrifts hold $7.3 billion, or 51% of the national total.