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Vernon fallout hits Houston thrifts
Collapse of Dallas S&L has $37 million impact on local lending institutions
The impact of the failure of Vernon Federal Savings and Loan in Dallas last month is beginning to be felt in Houston and across the state. The collapse is affecting financial institutions that did business with the large North Texas thrift.
Several Houston banks and S&Ls participated with Vernon in making risky loans on commercial real estate projects throughout the United States. Those local institutions purchased more than $37 million in loans made by Vernon. The exposure of institutions statewide is more than $175 million.
Today, the vast majority of those loans are in default, and the losses promise to further weaken the financial condition of local thrifts already hard hit by the downturn in the local economy.
One Houston financial institution has already fallen victim to bad Vernon loans. Texas National Bank-Westheimer was declared insolvent and closed by federal regulators earlier this year after losses on $9 million in loans purchased from Vernon Savings depleted the institution's capital.
The losses, however, are not likely to threaten the existence of any of the other three local financial institutions holding bad Vernon loans. The remaining institutions are larger thrifts and probably have the ability to withstand any losses that may occur as a result of the loans.
According to internal documents prepared by Vernon managers under the supervision of Federal Home Loan Bank Board (FHLBB) examiners, Guardian Savings was the largest local participant, with close to $14 million in Vernon loans. Village Savings followed, with just over $12 million, and San Jacinto Savings held $4.5 million in loans from the failed institution.
Representatives from all three thrifts declined comment on the loans and the problems they pose for the institutions.
The list of exposed financial institutions was obtained and published by American Banker, a national daily newspaper serving the banking and S&L industries.
All four Houston institutions have filed suit against Vernon and are seeking to recover damages related to the loan participations. In the case of TNB-Westheimer, the Federal …