US thrifts lost $5.4 billion in the second quarter and set aside a record amount to cover losses from bad mortgages and other loans. Data from the US Office of Thrift Supervision released Wednesday show federally insured savings and loan institutions posted their second-largest quarterly loss ever in the April-June period, after the $8.8 billion loss in the fourth quarter of last year. Heavily focused on mortgage lending, thrifts have been stung by mounting home-loan defaults. The $5.4 billion quarterly loss compared with net profits of $3.8 billion in the year-ago period, and a loss of $627 million in the first quarter. The roughly 830 thrifts also set aside a record $14 billion to cover losses from bad mortgages and other loans. John Reich, the thrift agency's director, said 98 percent of institutions still have adequate capital to weather the housing and economic turbulence. “Solid capital and sizable reserves for potential loan losses show once again that thrift managers are responding appropriately to the challenges they face,” Reich said in a statement. “These two factors will serve the industry well in riding out the current crisis.” The report from the agency, a division of the Treasury Department, came a day after the Federal Deposit Insurance Corp. said the number of troubled banks and thrifts jumped to 117 - the highest level since mid-2003. The FDIC also said profits earned by banks and savings and loans plunged by 86 percent in the second quarter, to $5 billion. The thrift agency said its number of problem institutions grew to 17 at the end of the second quarter from 10 a year earlier. The agency said the amount that savings associations set aside for problem loans soared in the second quarter to 3.68 percent of average assets from 0.38 percent a year earlier. Thrifts differ from banks in that, by law, they must have at least 65 percent of their lending in mortgages and other consumer loans - making them particularly vulnerable to the persistent housing downturn. The institutions regulated by the Office of Thrift Supervision range in size from big lenders like Seattle-based Washington Mutual Inc. and Sovereign Bancorp Inc. of Philadelphia to small community banks. Like banks, thrifts are being closely examined by federal inspectors for signs of heavy exposure to declining markets or troubled areas such as construction and real estate loans. The largest bank failure in years occurred in July and involved a thrift. Pasadena, California-based IndyMac Bank was the biggest regulated thrift to fail and the second-largest financial institution to close in US history, after Continental Illinois National Bank in 1984. It was taken over by the FDIC with about $32 billion in assets and deposits of $19 billion. IndyMac succumbed to the pressures weighing on institutions of all sizes nationwide: tighter credit, tumbling home prices and rising foreclosures. Eight other FDIC-insured banks have failed so far this year, compared with three in all of 2007, and more are expected to collapse. Meanwhile, new orders for long-lasting US manufactured goods jumped a surprising 1.3 percent in July, while a gauge of business investment also rose unexpectedly, a government report showed on Wednesday. Orders for durable goods, items meant to last three years or more, were up after an upwardly revised 1.3 percent gain in June, the Commerce Department said. Analysts were expecting durables orders to remain unchanged from the previous month. Stock futures rose and the dollar strengthened in foreign exchange trading against the the euro, while US Treasury debt prices slipped on the report. “This bodes well for capital spending in the third quarter,” said Matthew Moore, economic strategist at Banc of America Securities in New York. “It doesn't seem like the credit crisis is impacting capital spending.” Transportation orders rose 3.1 percent in July, the largest gain since February, on a 28 percent rise in civilian aircraft orders. Orders for machinery and primary and fabricated metals rose, while demand for computers and appliances waned. Even when volatile transportation orders were stripped out, demand for durables rose 0.7 percent. Analysts had expected a 0.5 percent drop in durables orders excluding transportation. Non-defense capital goods orders excluding aircraft, seen as a barometer of business spending, jumped 2.6 percent, the steepest gain since April. Analysts were expecting that category to decline by 0.1 percent.
