Profits at the nation's savings and loans rebounded in the first three months of 1992 to $1.59 billion, the best performance for the troubled industry in six years, the government said Wednesday.
Earnings at the 2,064 institutions that have escaped seizure by the government more than doubled from $610 million a year ago, the Office of Thrift Supervision said.It was the fifth straight quarterly profit, the office said, with 93 percent of the institutions reporting earnings.
And with the takeover of 711 S&Ls since 1989, only 37 S&Ls remain on the agency's expected-to-fail list.
"The end of the cleanup . . . is in sight," Timothy Ryan, thrift office director, told the Senate Banking Committee Wednesday.
However, the Congressional Budget Office and private analysts offered lawmakers a less rosy view.
As many as 650 S&Ls may yet fail, said Robert D. Reischauer, budget office director, adding that many experts believe the industry cannot be declared fully healthy until real estate markets recover.
"The cleanup of the thrift crisis is not over," Reischauer told the committee. "Thrifts are still not as profitable as they once were."
However, he conceded that the industry data "provide room for guarded optimism about its long-term viability, albeit as a much smaller player."
The two key reasons for the recent improvement, the thrift office said, are the government seizures of insolvent S&Ls since 1989 and the most favorable interest rate conditions for financial institutions since the 1970s.
However, the office sharply revised the industry's earnings for all of last year to $1.83 billion, down from an earlier estimate of $2 billion.
The agency, an arm of the Treasury Department, released a brief summary of Wednesday's report a day early.
Private analysts cautioned against an overly optimistic reading of the improved earnings report.
"From a taxpayer's perspective, the fact that 90 percent of the industry is doing well is secondary to how the worst 5 or 10 percent are doing because that's where the threat lies," said financial institutions analyst Bert Ely of Alexandria, Va.
In particular, one or more large S&Ls in California are in danger of failing, he said.
Congressional Democrats, including Sen. Donald W. Riegle Jr. of Michigan, the chairman of the Senate panel, have questioned whether the Bush administration was trying to keep a lid on bad banking and S&L news until after the election.
Kenneth H. Thomas, a bank and S&L analyst in Miami, said the thrift office may be understating its count of likely failures by 50 percent.
Also, the worst thrifts probably will continue to pile up losses because the government can't afford to close them. Regulators have spent $88 billion on failed thrifts since 1989; the administration estimates it needs as much as $42 billion more.
But Congress let the spending authority of the bailout agency, the Resolution Trust Corp., lapse on April 1 and election-year pressures may prevent lawmakers from voting for more bailout money before next spring.
"Things can only get worse in those problem institutions and that hurts everybody," Ely said. "They contaminate the market."
And economists warn that interest rate conditions underlying the rebound in profits at the top- and middle-level S&Ls won't last. Few economists expect the Federal Reserve to push interest rates down by more than another quarter or half a percentage point. And, as the economy heats up, they expect rates to begin rising.
During the recession, both S&Ls and banks were able to cut interest rates paid on deposits much more deeply than rates charged on loans, widening their profit margin.
Meanwhile, a monthly report released by the thrift office shows the S&L industry is still shrinking rapidly. It had $882.1 billion in assets at the end of March, down 15 percent from a year ago.
The monthly report includes data for private-sector thrifts as well as 50 failed S&Ls being operated by the RTC. The quarterly report does not include information on the RTC-controlled institutions.