WASHINGTON — Federal regulators pledged $1.3 billion Thursday to prop up Vernon Savings & Loan Assn. in Dallas in the largest such government rescue of a savings institution.
The Federal Home Loan Bank Board, regulator of 3,200 thrift institutions nationwide, said it was transferring Vernon's insured deposits to the newly created Montfort Savings Assn.
The bank board closed the institution because it was hopelessly insolvent and its problems were getting worse, FHLBB Chairman M. Danny Wall said.
The new entity will receive $200 million in cash and a $1.1-billion note from the Federal Savings & Loan Insurance Corp., which guarantees S&L deposits up to $100,000.
It will operate as a mutual association owned by depositors under management selected by the bank board, said Martha Gravlee, an FHLBB spokeswoman.
Regulators hope to sell Montfort eventually, reducing the cost of the bailout, she said.
It is the biggest rescue ever in terms of the cost to FSLIC, she said. The largest previous S&L rescue was the $681-million bailout in 1986 of Sunrise Savings & Loan Assn. of Boynton Beach, Fla.
Those transactions are dwarfed only by the $4.5-billion bailout in 1984 of Continental Illinois Bank & Trust of Chicago by the Federal Deposit Insurance Corp., a separate agency that insures commercial banks.
Vernon's 10 offices will be closed today and will reopen Monday under the new Montfort name, honoring the same rates and terms on all certificates of deposit. Depositors with less than $100,000 in the institution will have immediate access to their money Monday. Depositors with more than that must apply for access in writing.
Vernon's net worth had sunk to a negative $716.86 million by Sept. 30, and that was projected to drop to $1 billion or more by next year. At the end of September, it had assets of $1.17 billion and deposits of $1.4 billion.
"The damage done to Vernon by the management before March of this year was irreparable," Wall said in a statement.
The current management, appointed by the bank board on March 20, inherited a portfolio in which 96% of the loans were not paying.
Under the direction of Donald R. Dixon, who acquired Vernon in January, 1982, the institution increased its assets tenfold by making large, speculative development and construction loans, according to the bank board.
FSLIC filed suit in April for $100 million against Dixon and other former officers, charging fraud and other breaches of the officers' duties.
Montfort will be run by the same management installed by regulators upon Dixon's ouster in March when Vernon was converted from a state charter to a federal charter.