Regulator Wants Aid for Shaky, Big S&Ls; Before They Collapse

In a significant policy shift, the nation’s top thrift regulator said Wednesday that he wants to help big savings and loan associations avoid failure through early financial intervention from the federal government.

Under the plan, the government would join private investors in contributing money to some large, troubled thrifts--those having more than $1 billion in assets--making them attractive candidates for merger with stronger financial institutions, said Timothy Ryan, director of the Office of Thrift Supervision.

“I call it a new initiative and a new strategy,” Ryan said at a news conference.

The new strategy was unveiled as Ryan announced that the nation’s 2,283 thrifts earned $627 million in the first quarter, the industry’s first quarterly profit in four years. The improvement was expected as troubled thrifts have been seized by the government.

As many as a dozen of the nation’s major thrifts, which are having financial problems but are still up to two years away from facing insolvency, could be candidates for such early OTS intervention and financial aid, Ryan said.

Once a strong opponent of government financial aid to keep thrifts open, Ryan said the proposal is “oriented towards saving the taxpayer money.”

The current real estate slump has made it difficult for the government to dispose of assets after it has seized an insolvent savings and loan. The financial losses are substantial when the government must cover the difference between the insured deposits held at the S&L; and the value of its assets.

His plan would require cash from the Resolution Trust Corp., the agency that is handling the S&L; cleanup. “It’s not my (final) decision because I don’t have the money,” he said.

The RTC’s Oversight Board, a five-member agency that sets policy, would decide whether to finance efforts to keep the thrifts open. The board has not formally considered Ryan’s proposal.

The proposal comes as the OTS has turned its attention to dealing with a large group of potentially troubled but salvageable financial institutions, because the job of disposing of the worst S&L; casualties is nearing completion.

The agency has under its regulatory supervision a dwindling group of thrifts, institutions that are virtually stripped of capital and burdened by unprofitable real estate loans. The office identifies the insolvent institutions, and they are seized by the RTC, which now holds 210 S&Ls; with assets of $130.8 billion.

In 1991 alone, the regulators working for Ryan placed 83 S&Ls; with $56.2 billion in assets under RTC control.

With most of the crippled S&Ls; now under government control, the portion of the industry remaining in private hands is healthier and is reporting improved financial results.

The private sector S&L; industry had profits of $626 million in the first quarter of this year, contrasted with an industry loss of $373 million during the same quarter a year ago. In the past year, however, the government has taken over 163 insolvent S&Ls.;

“This period of positive earnings reflects the continuing profitability of the healthy thrifts and the fact that interest rates that thrifts have paid for deposits have fallen faster than interest earned on mortgages,” Ryan said.

In addition, he emphasized that the biggest losers have been transferred out of private hands and into government control. “Most financially failing institutions have been shifted to the RTC,” he said.

Although the industry made profits during the first quarter, there was a disturbing rise in the share of loans behind in payments, reflecting the economic recession. The S&Ls; reported that 2.44% of total loans were overdue, compared to 2.29% at the end of last year.

In California, the ratio of overdue loans jumped to 2.30% from 1.9% in the prior quarter. The thrifts in California have now joined the banks in reporting a significant increase in troubled loans.