Thrift Earnings Decline 37% in the Second Quarter
Earnings at private savings institutions slipped in the April-June quarter despite the most favorable interest rate conditions in four years, the government said Thursday.
Timothy Ryan, director of the Office of Thrift Supervision, blamed commercial real estate losses at 10 large institutions--many of them in California--for the 37% decline. He did not identify them.
The thrifts earned $387 million in the second quarter, down from $610 million in the first three months of the year.
California thrifts posting large losses included the holding companies for Glendale Federal Bank, which lost $137.1 million; HomeFed Bank in San Diego, $112.5 million, and Los Angeles-based California Federal Bank, $10.9 million.
The deterioration offers no comfort for members of Congress, who will be looking this fall at doubling the taxpayer appropriation for the S&L; bailout. Congressional hearings begin next week on the Administration’s request for a second $80-billion appropriation.
“Clearly the grim reaper is going to be making the rounds again. The (government) could have to literally seize hundreds more institutions,” said economist Paul Getman of Regional Financial Associates in West Chester, Pa. “That means all of those estimates on the thrift bailout could be too low.”
The thrift office said it expects at least 118 of the still-alive institutions to fail, including 11 in California. It classified an additional 377 as troubled, with poor earnings and low levels of capital reserves. That leaves only 1,721 S&Ls; classified as healthy.
Still, the most recent report was considerably better than the $302-million loss in the second quarter of last year. It also marked the first back-to-back quarterly profits since 1986.
However, Ryan noted that the slim profits were eked out at a time when the average interest that thrifts paid for deposits and other sources of funds was 6.94%, lowest in nearly four years.
During the recession, rates on deposits have declined far more than rates on mortgages and other S&L; assets, widening the difference, or “spread,” from which S&Ls; derive their earnings.
Ryan attributed much of the industry’s return to profitability to the government’s seizure of more than 600 failed S&Ls; since passage of bailout legislation in 1989.
The figures reported Thursday did not include 193 failed institutions under the control of the Resolution Trust Corp., the bailout agency.
Industry earnings were bolstered by $462 million in continuing government assistance to thrifts arranged under pre-1989 bailouts.
S&L; Profits and Losses Earnings at private savings institutions slipped 37% in the second quarter as commercial real estate loan losses mounted at some large institutions. Here is a list of states reporting thrift losses. Figures are in millions of dollars.
State 1991 1990 Alaska -$1.9 $0.4 California -8.7 -71.0 Florida -0.8 -132.9 Louisiana -43.5 -74.3 Maine -1.0 0.4 Massachusetts -4.7 -23.5 Mississippi -3.7 0.6 Nevada -20.2 6.0 New Hampshire -4.4 -3.1 New Jersey -127.3 -53.0 Rhode Island -9.1 0.4 Virginia -98.0 -61.3
Source: Office of Thrift Supervision
