Fed's Largesse Lifts Thrifts

A year of steadily falling interest rates has proven stimulus enough to shield savings and loan shares from the recent meltdown on Wall Street. Analysts say the run could continue if the Fed makes good on pledges to keep the economy supplied with liquidity.

"I think they're a nice defensive play at this point, given the state of the economy," said Joy Palmer, analyst at Merrill Lynch. "People thought this mortgage cycle was going to end sooner than it appears to be. We've actually lengthened it out such that we don't have to worry about it for at least a quarter and maybe even six months."

The shares have been one of the few havens of the recent downturn. Washington Mutual(WM Quote), an industry bellwether, closed Wednesday at $37.24, up 10% since Jan. 3 and above its Sept. 10 close of $35.03. Another big thrift, Golden West Financial(GDW Quote), trades for $57.80, down 11% for the year, but up from its Sept. 10 close of $54.68.

Thrifts, which lend money to home-buyers, have chalked up record earnings as a result of the Federal Reserve's dogged efforts to boost spending. Alan Greenspan and his central bankers have so far cut the fed funds rate eight times since Jan. 3. Some economists expect rates to fall as low as 2% by the end of the year. ...