Federally arranged mergers of savings and loan associations will continue at their current record level throughout next year, H. Brent Beesley, director of the Federal Savings and Loan Insurance Corp. warned today.
Neither deregulation of financial institutions nor declining interest rates will soon end the savings industry's problems, the government official in charge of failing savings and loans said at the opening of the annual convention of the National Savings and Loan League.
"Even at today's lower interest rates, we can expect the current caseload of roughly three merger cases per week to continue through 1983," Beesley said. The current rate of three government-ordered mergers per week compares with less than three per year from 1934 to 1981, added Beesley, whose agency arranges for failing savings associations to merge with healthier ones.
Beesley's warning of continuing S&L troubles came as new government statistics showed savings associations are still losing money at a record rate.
The Federal Home Loan Bank Board in Washington released figures showing federally insured associations lost $3.3 billion in the first half of the year compared with $3.1 billion during the previous six months.
The report said 2,942 of the 3,572 government insured S&Ls lost money in the first half, or 82 percent of the industry. In the first half of 1981, 70 percent lost money.
While their operating losses increased, the number of savings institutions continued to shrink--from a high of 4,500 in 1965 to fewer than 3,600.
An estimated 400 S&Ls will be merged out of existence this year, about one third more than last year, according to bank board estimates. The 1983 totals probably will be smaller. While the number of S&Ls disappearing through government-ordered mergers next year is expected to equal or exceed this year's projected loss of 60 institutions, the number of voluntary mergers is likely to drop as a result of the government aid bill recently passed by Congress. The president is expected to sign the bill.
About 1,000 S&Ls are expected to receive federal assistance during the fourth quarter, Beesley said, and 1,100 will get help next year. The assistance, in the form of an exchange of capital notes between the thrifts and the government, will have a value of $340 million this year and $680 million next year.
These figures represent an infusion of government securities to bring the net worth of savings and loans up to acceptable levels. The government will not have to put up any cash unless an institution fails. This program -- which props up the thrifts' balance sheet with artificial assets -- has been criticized in some quarters as accounting legerdemain.
In his talk to S&L executives here, Beesley urged a more realistic financial reporting system for thrifts. "Today, if the reported financial picture equates to reality, it is purely coincidental," he said. "The public and management must be made aware of an institution's real situation and not be misled by nonrelevant accounting." He warned that, if the true condition of savings associations is revealed, customers will put fewer dollars into uninsured accounts.
The federal regulator suggested that business credit rating services such as Standard and Poor's and Moody's should rate S&Ls like other businesses.
The capital assistance program approved by Congress last week does nothing more than buy time, and does not change the industry's basic problems, he noted. "If it is clear buying time does not help, then there must be a realization that the institution is not viable." Beesley indicated he wants to cut losses by merging hopelessly insolvent institutions as quickly as possible to save FSLIC funds for the survivors.
The FSLIC, which found itself short of cash 17 months ago when the big merger program began, now has a positive cash flow of $100 million monthly, Beesley reported.
Although Beesley predicted the savings industry will return to profitability next year, the industry is now in such straits that attendance at this year's convention is down about 10 percent from last year.