Savings and Loans Report a Profit Thrift Industry Appears to Have Turned Corner, but New England Savings Banks in Trouble

By Scott Pendleton, writer of The Christian Science Monitor | The Christian Science Monitor, March 17, 1992 | Go to article overview

Savings and Loans Report a Profit Thrift Industry Appears to Have Turned Corner, but New England Savings Banks in Trouble


Scott Pendleton, writer of The Christian Science Monitor, The Christian Science Monitor


SPARRING over the savings and loan crisis by candidates in today's presidential primaries in Illinois and Michigan almost obscured the good news from the Office of Thrift Supervision: 1991 was the industry's first profitable year since 1986.

"We are now in the eighth inning of the cleanup process," OTS director Timothy Ryan said last week in announcing the results. The industry - 2,100 thrifts at year-end, not including those seized by the OTS - earned $1.97 billion last year.

In Texas, where the OTS closed the most thrifts, business is looking up so much that the Texas Savings and Loan League has had an inquiry about how to start an S&L, says president Tom King. He says the market is ripe for new savings institutions in the many towns and counties that no longer have one.

On the other hand, New England thrifts remain troubled. That region has a large number of state-chartered savings banks, a type of thrift found almost nowhere else. Savings banks act very much like S&Ls but are regulated by their respective states and the Federal Deposit Insurance Corporation. While classed as thrifts, they were not included in the OTS data. Ross Waldrop, a financial analyst with the FDIC, says that the 441 savings banks lost $1.2 billion in 1991, down from $2.6 billion the previous year. These institutions are "overwhelmingly concentrated in real estate," he says. Savings bank failures

Not surprisingly, failures surged as the New England real estate market crashed: zero in 1988; one in 1989; 10 in 1990, and 19 last year. The FDIC listed only 17 savings banks as "troubled" at the end of 1989, but the number doubled in 1990 and again last year, to 72.

"The New England economy is incredibly weak. It's probably not that far behind where Texas was in the mid-1980s," says Michael Wilson, an economist with the US League of Savings Institutions.

Still, he likens the tough tactics of industry overseers there to a "regulatory reign of terror. Banks and S&L managers are literally afraid to make a loan," causing a credit crunch. Although Washington has urged banks to lend, "that word is trickling down very slowly, if at all, to the regional and local regulatory system," Mr. Wilson says.

Some analysts are apprehensive that California could be the next problem area. It ranks second in thrifts "resolved" (sold or closed) by the government, and that was before the state's economy went soft.

The Resolution Trust Corporation, which handles S&Ls once they are taken over by the OTS, currently operates 81 insolvent thrifts. That number rises when OTS sends it more and declines as the RTC resolves them. …

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