US thrifts face $2 billion operating loss

By Karey Wutkowski

WASHINGTON (Reuters) - U.S. thrifts probably had a couple of billion dollars of operating losses in the fourth quarter as the industry grappled with challenging housing and credit markets, a top banking regulator told Reuters on Thursday.

"Based on the largest institutions ... it's probably going to be a couple billion of dollars of operating loss in the fourth quarter," said Scott Polakoff, chief operating officer of the Office of Thrift Supervision. "The majority of that is going to be comprised of goodwill."

OTS Director John Reich said many of the institutions would return to profitability in a quarter or two as they work through credit quality issues.

"Our institutions today are not structurally unprofitable," Reich told the Reuters Regulation Summit in Washington.

Reich also called an analyst report predicting between 50 and 150 U.S. bank failures by early 2010 an "irresponsible suggestion."

An RBC Capital Markets analyst said earlier this month that dozens of banks could fail in the next two years as losses from soured loans mount and regulators crack down on lenders.

Reich said the OTS doesn't have the thrifts' final earnings figures yet for the fourth quarter. The agency will officially release the results later this month.

U.S. thrifts in the third quarter reported sharply lower earnings, but the group of more than 800 thrifts still posted a total profit of $704 million. The drop in earnings was attributed to increased provisions for loan losses and to losses from the sale of loans caused by difficult financial markets.

Reich said there will be large additional allowances for loan losses in the fourth quarter. But he said he expects the industry to be profitable overall in 2007.

He also noted that the industry is sound and must ride out a "very challenging time."

"Once we get past the credit quality issues, these institutions are basically profitable," Reich said. "I think 2009 will be a significantly better year for both the banking industry and the thrift industry."

(For summit blog: summitnotebook.reuters.com/)

(Additional reporting by Rachelle Younglai)

(Editing by Lisa Von Ahn, Phil Berlowitz)