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Fewer Insolvent S&Ls, Although Problems Continue

December 13, 1988

WASHINGTON (AP) _ The number of insolvent savings institutions declined for the third consecutive quarter in the July-September period, but even as government rescues soared other institutions were slipping under water, regulators said Tuesday.

The Federal Home Loan Bank Board, which regulates federally insured thrift associations, said 434 of 3,024 were insolvent at the end of September, down from 498 three months earlier and substantially lower than the peak of 520 at the end of last year.

However, regulators had to ″resolve″ the cases of 129 insolvent institutions - either through rescues or closures - to whittle the insolvent list by 86 over the first nine months of the year. That means 43 other institutions slipped into the red.

In the third quarter, an additional 150 institutions were on the edge of insolvency, with capital levels between zero and 1.5 percent.

The bank board reported two weeks ago that the industry’s losses shrank dramatically in the third quarter. They were $1.6 billion, down from $3.9 billion in both the first and second quarters.

Losses for the first nine months - $9.4 billion - already surpass last year’s post-Depression record of $7.8 billion.

On Tuesday, the bank board released details showing that, as in the past, the losses were heavily concentrated in Texas and in just a few institutions in the third quarter.

The 244 Texas thrifts - 114 of them insolvent - reported losses of $1.7 billion. All thrifts outside of Texas managed a modest gain of $45 million. The worst 20 institutions - 14 of them in Texas - lost $1.3 billion.

″It may be misconstruing it to say, ’Hey, we’re coming out of the woods. These numbers say, ’Hey, you’re still losing a lot of money,‴ said Martin Regalia, chief economist of the National Council of Savings Institutions, a trade group. ″It’s nothing to get euphoric over.″

″The hole is still bigger, it’s just not getting bigger as fast. You can take some solace in that, I just wouldn’t take too much solace,″ Regalia said.

James Barth, chief economist of the bank board, said the quarterly loss would have been $2 billion without the government actions, still a substantial improvement.

However, Bert Ely, a financial institutions analyst in Alexandria, Va., said a large portion of the industry’s operating income is coming from a flow of assistance to restructured institions.

Ely said the bank board made assistance payments of $528 million in the third quarter, up from $466 million in the second quarter. Payments on government promissory notes were $948 million, up from $101 million, he said.

″There’s a substantial amount of income support coming in. ... It is adding to income level, it is adding to the bottom line,″ he said.

All three economists expressed concern about the effect of rising interest rates on thrift earnings in the current quarter, which won’t be released by the bank board until March.

Barth said operating profits at the solvent institutions, which declined in the third quarter after improving in the second quarter, likely would be depressed in the fourth quarter by rising rates.

″Interest rates do not bode well for the future,″ Regalia said.

Ely and Regalia also noted that non-operating losses frequently rise sharply in the final quarter of the year because institutions often account for loan losses as they prepare their books for the end of the year.

The conditions of S&Ls stands in stark contrast to the relative health of commercial banking. Despite more than 200 bank failures so far this year, banking as a whole posted record profits totaling $16.4 billion in the first nine months of the year.

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