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...that, if interest rates do not abate, perhaps as many as one-third of them will close down in the next five years. Two weeks ago, the Economy Savings and Loan Association of Chicago became the first federally chartered institution to fail in a decade. Many other S and Ls will be forced to merge, as the stronger take over the weak. Last year 142 mergers took place among savings and loans, as compared with only 42 in 1979. Seventy more have occurred so far this year. Says George Salem, an analyst with Bache Halsey Stuart Shields: "S and Ls...
...banks remain relatively stable because of their large amount of business lending, which is normally tied to the fluctuating prime rate. But savings and loans and other institutions specializing in fixed-rate mortgages are in serious trouble. Two-thirds of all home loans on the books of S and Ls carry rates of 10% or less, though the thrifts have to pay 15% and more for new money. Says Analyst Gray: "In New York the thrifts are 20 feet under water; in other states it might be only five feet. But they're all under water...
Economy Savings, a small institution with deposits of $69 million, is the only S and L in a decade to be liquidated by the FSLIC, but it may be only the first of many in the coming months. Like all S and Ls, Economy Savings was trapped in a profit squeeze caused by unrelenting high interest rates. It was forced to pay as much as 15% to attract deposits, while carrying many old mortgages on its books that earned less than...
Unless interest rates drop precipitously, the U.S.'s 4,600 S and Ls are likely to lose $5 billion this year, and scores of weak institutions could easily collapse. In 15 months the number of S and Ls on the FSLIC'S list of "problem cases" has jumped from 79 to 246. Last year the agency saved eleven insolvent S and Ls by ar ranging shotgun mergers with healthier institutions. These rescue operations cost the agency $1.3 billion out of its $6.5 billion reserve fund. The bal ance sheet at Economy Savings, however, was apparently so dismal that...
...Reagan Administration has resisted recommending any emergency aid to S and Ls. Treasury Secretary Donald Regan argues that the President's economic program of budget reductions, tax cuts and tight regulation of the money supply will eventually bring down interest rates and relieve pressure on financial institutions. The fate of hundreds of beleaguered thrifts now rests on that strategy...