Word: thrifts
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...Federal Savings and Loan Insurance Corporation is supposed to be the lifeboat of the thrift industry, but these days the agency itself is in dire need of rescue. Playing its role as the insurer of deposits in savings institutions, the FSLIC has been nearly swamped by adversity. Beset by severe loan losses, 50 of the 3,200 federally insured savings and loan associations and savings banks have either been reorganized or forced by the FSLIC to merge with other institutions this year. As the agency reimburses depositors at collapsed savings and loans and pays out large sums to healthy institutions...
...moment, though, the FSLIC is on its own, and the agency has taken several steps in its struggle to stay solvent. For one thing, it has raised the charges it levies on the thrift industry. Besides the basic premiums of $780 million, the agency will assess the industry an additional $1 billion this year. In a more controversial vein, the agency rules governing accounting methods enable thrift institutions to appear stronger than they actually are. For example, S and Ls can stretch out the reporting of losses from mortgage sales. Moreover, 122 S and Ls now count among their assets...
Ironically, the woes that confront so many thrift institutions come at a time when the outlook for the industry as a whole is much brighter than it has been in many years. Overall profits are expected to hit a record $6.5 billion this year, a strong rebound from the $4.6 billion loss suffered in 1981. The sharp drop in interest rates since 1981 has been responsible for much of the improvement. The fall in rates has reduced the interest that S and Ls pay to depositors faster than it has lowered the interest that the institutions earn on mortgages...
...while the interest rate trend has been favorable, hundreds of the weakest thrift institutions have been all but overwhelmed by unexpectedly large losses from bad loans. Many of the shakiest institutions are in communities that rely on farming or energy production, which have been deeply depressed. About 31% of the savings associations in Iowa and 43% in Oklahoma are losing money. Just last month, a major oil-patch S and L, Western Savings Association of Dallas, was declared insolvent, and control of its $2 billion in assets was seized by the bank board. It was the third largest thrift industry...
...Some thrift executives used financial deregulation as an opportunity to become big shots. In the early 1980s, Centennial Savings & Loan of Guerneville, Calif., bought a Cessna company plane, imported a French chef for its executives and invested in projects as diverse as a mushroom farm and a highway construction company. The S and L failed in 1985, and the bank board had to take it over and replace almost all the high-ranking managers. Says Jack Steele, dean of the University of Southern California School of Business Administration and a member of the new board of directors: "The first thing...