Federal banking regulators and an investment group led by Chicago banker A. Robert Abboud are gambling on a recovery in the Texas economy with their joint $1.5 billion investment in troubled First City Bancorp of Texas, bank industry executives said yesterday.

The speed of recovery will determine how much money Abboud's investment group will make.

It will also determine whether the government's loss will be a full $900 million or several hundred million less.

It's a gamble that several potential bidders for First City -- including Citicorp, the nation's largest bank company, and Riggs National Bank, the District's largest bank -- found they were unwilling to take.

When the Federal Deposit Insurance Corp. said Wednesday that Abboud's group would take over First City in the second-largest government-sponsored bailout of a bank, Abboud hailed the deal as "a strong vote of confidence in ... the future of the Texas region."

But Abboud's decision to take a chance on the future of the fourth-largest bank company in Texas, which averted collapse only through the government intervention, was described somewhat differently by other bankers and industry watchers yesterday.

They view Abboud's -- and the federal government's -- stake in keeping First City's 62 subsidiary banks open as a risk-ridden bet, albeit one more appealing than the $1.8 billion loss the government would have taken for certain by closing and liquidating the bank company.

Citicorp and Riggs, for example, both decided not to submit bids to the government for First City, according to bank industry sources.

Both potential bidders think the Texas economy, which has been depressed for several years by sagging energy and real estate prices, eventually will rebound. Both also recognize that, under terms of the bailout, the federal government has wiped the bad assets off the books of First City and given it a clean bill of health to start over.

Even so, Citicorp and Riggs felt "the government imposed restrictions that made the deal too expensive," according to one banking executive.

Abboud and his group, which is also being led by the investment banking firm of Donaldson, Lufkin & Jenrette Securities Corp., think otherwise. Abboud said in an interview that he thinks there will be no trouble raising $500 million in a public stock offering.

If the new stock offering succeeds, First City's current shareholders will see the value of their holding fall to next to nothing as their investment in the bank company falls to 3 percent from 100 percent. That raises the question of why the investing public would be willing to sink $500 million in an organization that cost current shareholders millions of dollars.

"The potential {new} shareholders of the newly capitalized bank are the ones that could gain," said Sandra J. Flannigan, regional bank stock analyst in Houston for PaineWebber. "They'll end up with a clean bank."

Abboud and the new management team he will bring to First City are betting they can put the bank company on a more sober -- and profitable -- course than past managers followed, bankers said.

An advertisement for a newly published book by Abboud, titled "Money in the Bank," says the former chairman and chief executive of First Chicago Corp. and former president and chief operating officer of Occidental Petroleum discusses "how banks have gotten stuck holding the bag at the tail end of many investment fads."

First City, whose troubles stem from soured energy and real estate loans, is one such bank, and whether the Texas economy will rebound quickly enough to provide sounder investments for the restructured, recapitalized First City remains to be seen, bankers say