The federal government yesterday announced the second-largest bailout in U.S. banking history -- a $1.5 billion rescue of First City Bancorp of Texas.

Federal Deposit Insurance Corp., the federal agency that insures bank deposits and manages assets from failed institutions, said that the rescue package for the fourth-largest bank company in Texas includes $1 billion in federal funds and $500 million from the sale of stock to private investors.

"This is no bailout for the old shareholders or for the old bank management. ... For their purposes ... the bank has failed," said FDIC Chairman L. William Seidman.

First City -- a Houston company with $12 billion in assets, 61 banks in Texas and one bank in South Dakota -- is the latest casualty in a banking crisis that has hit farm and energy states in the Midwest and Southwest and resulted in the greatest number of bank failures since the Depression. The problems reflect continued pressure on regional economies from several years of depressed oil and real estate prices.

FDIC officials said they decided to keep First City open rather than liquidate it because it would be cheaper for the government. Seidman said he expects the FDIC will lose between $800 million and $900 million "in a worst-case scenario" under the rescue plan.

But the government's loss could have been as high as $1.8 billion if First City had been closed and its assets sold and depositors paid off, he said.

The FDIC said that it devised the complicated bailout package when federal regulators determined that several of First City's subsidiary banks, including its $5 billion lead bank in Houston, were in danger of failing.

Counting First City's 62 banks, the FDIC has rescued 78 banks this year, including 72 in Texas. In addition, the FDIC has closed 122 banks this year, including 36 in Texas.

Seidman said that he hopes First City is the last large Texas bank that regulators will have to sell or bail out.

The First City rescue package protects depositors and the federal deposit insurance fund, and leaves current shareholders to bear most of the loss for the company's financial problems, FDIC officials said. Current stockholder's stake in the company will fall from 100 percent to less than 3 percent, he said, and long-term creditors of the holding company are unlikely to be repaid in full.

The largest FDIC bailout was the 1984 rescue of Continental Illinois National Bank and Trust of Chicago. In that plan, however, creditors of the holding company were protected.

The First City rescue plan, which is expected to be complete by year-end, involves several key steps:

A group of investors led by A. Robert Abboud and the investment banking company of Lufkin & Jenrette Securities Corp. will pump $500 million into First City by selling stock to public investors. An additional $43 million will be sold to the FDIC.

Abboud, former chairman of First Chicago Corp., will be chairman and chief executive of the restructured company and will select new management, subject to FDIC approval. Seidman said the agency will not run the bank company's day-to-day operations.

Abboud said he will invest $5 million of his own money.

A spinoff bank will be created that will take possession of $1.79 billion in bad assets now held by First City's subsidiary banks. The spinoff bank will be run by First City and the FDIC will not own any of the bad assets. However, the FDIC will give First City's banks $970 million in notes. The transaction will make the 62 banks healthy.

The spinoff bank will sell the bad assets, which is expected to be completed within five years, and give the first $500 million in proceeds to First City's banks and the next $970 million to the FDIC. The restructured First City will guarantee the FDIC of a repayment of at least $100 million.

The holding company's long-term debt of $243 million will be renegotiated, with creditors expected to be forced to make major concessions, FDIC officials said. The holding company's $48.5 million in short-term bank debt will be repaid in full.

Creditors of the First City's subsidiary banks will be repaid on schedule, Abboud said.

When the sale of stock is complete, the bank company's current shareholders will be left holding less than 3 percent of the restructured company.

The current shareholders will be offered the option of buying $43 million in new shares, however, which would boost their total stake in the restructured company to 12.5 percent, FDIC officials said.

In addition, the current shareholders will be entitled to any money left over once the spinoff bank sells First City's bad assets and pays off the 62 subsidiary banks and the FDIC.

"We don't expect much will be left over," said Sandra J. Flannigan, regional bank analyst in Houston for PaineWebber. She said that First City now has 33.1 million shares of stock outstanding. Between 1982 and 1987, the high for the stock was $34 a share, she said.

Yesterday, it closed at less than $1.62 1/2, down 25 cents.

The Federal Reserve Board has approved the rescue plan, FDIC officials said. But First City's stockholders, who have the most to lose, must approve it. FDIC officials said they expect shareholders to approve the plan because the alternative would be to close the bank, leaving shareholders with stock of no value.

The shareholders would rather hold 3 percent of the outstanding shares as long as the shares are worth something, the officials said.

The other hurdle will be to sell the $500 million in shares to the public. "We don't expect any problems," said Lawrence Lavine of Donaldson, Lufkin & Jenrette. He said the investment firm will buy at least $250 million of the shares.

But should the issue of the stock fail or the shareholders refuse the plan, "We'll start over again," Seidman said.

First City has been in trouble for several years. Because of losses on real estate and oil loans, First City lost $160.9 million in the first six months of this year and $402 million in 1986. On Aug. 19, the firm suspended dividends on its preferred stock.

Former FDIC chairman William Isaac, who led a group of unsuccessful bidders for First City, praised the rescue plan. "Closing First City down and liquidating it would have been a nightmare," he said.

Abboud, who has a reputation for being a tough manager, said, "This investment is a strong vote of confidence in both First City and the future of the Texas region.