NEW YORK -- The nation's thrift institutions, probably the most damaged among victims of high interest rates, are now losing money at the rate of $32 million a day with savings and loans being merged out of existence at the rate of almost one a day.
The prospects for the industry grow gloomier each day that interest rates remain entrenched at their lofty levels and the cries to Washington for help have reached a crescendo.
Industry officials and private analysts stress their belief that customer deposits are not in jeopardy thanks to the federal deposit insurance programs that grew out of the Great Depression when the industry last experienced torment of such dimensions. But they fear the damage to the industry will be devastating.
'To put it mildly, things are quite bleak,' says Wall Street analyst Jonathan Gray of Sanford C. Bernstein & Co.
Absent a sharp decline in interest rates, a study by the Brookings Institution, the Washington-based think-tank, predicts that perhaps another 900 thrifts will have to be merged or shut down over the next two years.
In January alone, there were 26 S&L mergers. including 16 that had to be supervised by banking authorities and four which required financial assistance from the Federal Savings and Loan Insurance Corp. Last year 294 S&Ls were merged, including 23 that required federal assistance.
Another troubling sign was the latest government report showing the industry's net worth -- the cushion built up during profitable years that S&Ls now rely on to absorb losses -- shrank by a record $875 million in January. At that rate the industry, which lost some $5 billion last year, could lose another $10 billion this year.
Gray insists that even the gruesome loss figures understate the dimensions of the problem since the heaviest losses are afflicting the weakest institutions. He estimates that no more than 5 percent of the industry -- or about 200 of the nation's 4,320 S&Ls -- is profitable. The rest are writing their financial ledgers in red ink.
While the industry's remaining $27 billion in net worth is suffiicent for many institutions to weather losses for years, hundreds may not make it through 1982.
By Gray's estimates, at least 10-15 percent of the industry either is already bankrupt or will have net worth completely eroded by the end of the year.
S&LS and the 460 mutual savings banks -- collectively known as 'thrifts' -- have for generations financed the bulk of America's housing.
As industry officials note, the current dilemma facing savings banks -- which lost $1.5 billion last year and had five federally assisted mergers in recent months -- and S&Ls resulted not from mismanagement, but from simply doing the job they were chartered to do and under the restrictions government placed on their activities.
In recent years, the problem has been that thrifts have been forced to pay more in interest to retain or attract deposits than they earn in interest from long-term mortgages, many of which were written years ago at much lower rates.
For decades, the system worked simply and quite well for borrowers and lenders alike. The thrifts paid 5 percent interest to depositors and then lent the money out to homebuyers at 7 percent. The 2 point difference or 'spread' covered the thrift's overhead and profits.
When inflation began soaring and new competition emerged from money market funds and other institutions, the system began to unravel. Thrifts had to pay higher and higher rates to retain and attract depositors.
Although the rates on new mortgages they wrote rose too, the interest they had to pay depositors went up faster. Meanwhile, the old low-yielding mortgages were still on the books.
Merrill Lynch estimates the thrifts' average cost of funds is 11 percent while the average return on their mortgages and other assets is only 10 percent.
Aggravating the problem, during most months last year withdrawals at thrifts exceeded deposits. While many depositors have withdrawn their money in favor of places like money market funds, an isolated exodus of depositors from a Hartford, Conn. S&L last month gave the industry a chilling glimpse as to what their plight might be doing to undermine public confidence in the system.
After the Saturday edition of the Hartford, Conn., Courant hit the newstands with a front-page article reporting Hartford Federal 'lost a record $7.3 million in 1981 and is now taking drastic steps to stay afloat,' worried depositors withdrew $600,000. The next night a made-for-television movie about the 1929 stock market crash was shown on a major network and the following day frightened depositors -- many of them older customers who well remembered the crash -- withdrew another $3 million.
The run, which totaled $10 million a few days later, subsided after customers had been given repeated assurances that their deposits were federally insured and an offer was made to restore, with refund of penalty for early withdrawal, any certificates of deposit that had been withdrawn.
Outside of government assistance, Andy Carron, author of the Brookings study, said, there will have to be a sharp and permanent decline in interest rates if there is to be salvation for hundreds of institutions.
To restore normal operating margins to the industry, Carron said, short-term rates would have to decline to 10 percent from their current 13 percent range, and remain there this year and next.
A sharp drop in rates would not provide immediate relief because much of the thrifts' deposits are locked in at high rates on popular six-month and 2 -year certificates.
The Reagan administration so far has rejected federal bail-out plans contending its economic recovery program will reduce interest rates to the levels needed to bring relief to the industry.
In the interim, it insists, dealing individually with troubled thrifts will be a 'manageable' problem with the resources of federal insurance agencies sufficient to find merger partners and protect customer deposits.
But many are worried that interest rates won't fall far enough or fast enough and that there won't be enough merger partners or money to handle the crunch of failures that some predict.
Last week, the U.S. League of Savings Associations and the National Association of Mutual Savings Banks urged Congress to pass a $10 billion aid plan to provide direct assistance to thrifts whose net worth falls below a certain level, offset losses on low-yielding mortgages held and give mortgage rate subsidies to home buyers.
'We have run out of time,' Roy G. Green, chairman of the league, said in outlining the proposal. 'Home financing institutions -- and the housing industry they support -- must have some federal assistance.'
Describing the industry outlook as 'bleak,' Richard Pratt, chairman of he Federal Home Loan Bank Board, recently proposed giving federally-chartered S&Ls broad new powers to make commercial loans, offer money market funds and underwrite insurance as a way of making the thrifts 'viable' in the long run.
The proposal, which is pending a 60-day public comment period, was criticized by Congressional leaders as a matter that should fall under legislative, not regulatory, action. Consumer groups feared such expanded powers would jeopardize the supply of mortgage funds.
In Congress, where there is likely to be considerable opposition to any aid plan at a time when there is pressure to keep federal spending down, Rep. Fernand J. St Germain, D-R.I., has proposed a $7.5 billion loan program to bolster the net worth of ailing thrifts.
Analysts believe the longer the problem persists, the greater the damage and the harder and more expensive it will be to pick up the pieces.
Economist Richard Kopcke of the Federal Reserve Bank of Boston predicts at the current rate of losses, two-thirds of the thrift institutions will run out of capital by the time all of their low-yielding mortgages are off the books and the cost of government assistance required would be $80-$120 billion.
Although Kopcke estimates it will take 15years before all those mortgages expire, he predicts the bulk of the losses would take place within the next five or 10 years if interest rates don't decline significantly and stay down.