Thrift Losses Narrow, Bad Assets Still a Drag

In a day of mixed news for the thrift industry, the Office of Thrift Supervision (OTS) released a report showing losses at US thrifts narrowed significantly in Q109. But the regulator also reported the number of problem institutions climbed and the value of the industry’s bad assets hit a record high. Thrifts reported a $47m loss in Q109, marking their best performance since September 2007, according to the OTS. During the quarter, 74% of savings and loan companies were profitable, up from 65% in Q408. “Although it’s too early to say we’ve hit bottom or that the industry’s troubles are behind us, fundamentals such as solid capital, strong levels of loan loss reserves and improving operating income give the industry a solid platform for the future,” said OTS acting director John Bowman in a press statement. Nonetheless, regulators suggest some red flags still sound warnings for US thrifts. The issues of nonperforming loans and the need to add to reserves haven’t vanished. Based on the OTS’s evaluation of institutions’ capital, asset quality, management, earnings, liquidity and sensitivity to market risk, 31 thrifts are now listed as “problem” thrifts, up from 26 in Q408. Profitability was a negative 0.02% in the first quarter, an improvement from the negative 1.82% in the previous quarter and the negative 0.17% in the first quarter a year ago. The improvement is likely due to lower loan-loss provisions, as the company added just $5.8bn in provisions over the quarter, compared to $9.3bn in the previous quarter. At the end of Q109, the OTS supervised 801 thrifts with assets of $1.23 trillion. Total troubled assets valued a record $41 billion, surpassing the previous record of $40.5 billion set in 2008. Write to Kelly Curran.

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