Statements in a story Saturday attributed to Thomas W. Butch, spokesman for Mellon Bank Corp., referred only to the quantitative, not the qualitative, difference between Mellon's bid for Perpetual Savings Bank and the winning bid by Crestar Financial Corp. Butch had been quoted saying that Mellon's bid "was not as good" as Crestar's. (Published 1/14/92)

After 110 years of helping to finance the growth of the nation's capital, Perpetual Savings Bank was closed yesterday by the federal government and Perpetual's deposits, along with 22 of its branches, were sold to Crestar Financial Corp. of Richmond for $7.8 million.

The deal is expected to result in layoffs of more than 700 of Perpetual's 1,200 employees, adding to the woes of the region's economy.

The collapse of Perpetual, which is the largest financial institution to fail in the Washington area, is expected to cost American taxpayers more than $400 million. It operated 61 branches in Maryland, Virginia and the District and, until last year, ranked as the area's largest savings and loan. At the time of its closing, the thrift had $3.4 billion in assets and $2.6 billion of deposits.

Twenty-two Perpetual branches will be reopened Monday as banks under the Crestar name. Over the weekend, depositors will be able to withdraw money at any automated teller machine linked to the MOST network.

However, Perpetual's ATMs located in Safeway grocery stores were closed immediately. Depositors whose branches are not reopening Monday can check postings on the branch doors for information on the nearest Crestar office where they can do business. Customers can continue writing checks on their Perpetual accounts.

Perpetual accounts remain insured by the Federal Deposit Insurance Corp. for up to $100,000 per account.

Although Crestar also acquired a small number of consumer loans and some cash and other securities in the deal, it left more than $2 billion of soured real estate loans and other assets in the hands of the federal government, which already is trying to dispose of more than $100 billion of real estate and other assets acquired from failed S&Ls.

The federal government was left operating Perpetual's various business subsidiaries, which included the area's largest mortgage lender, Perpetual Mortgage Co. Federal regulators said they would continue running these businesses until they can be sold or liquidated.

The Vienna-based thrift, which started as a poker club whose winnings helped Washingtonians buy homes in the days of dirt roads and horse-drawn carriages, has been operating under federal control since July, when massive losses on real estate loans forced its owners to allow the government to step in and find a buyer.

The sale and closing of Perpetual is the latest in a series of bank and thrift failures to hit the Washington area since 1990. So far, regulators have closed the National Bank of Washington, Madison National Bank, Trustbank Federal Savings Bank, John Hanson Savings Bank, United Savings Bank, Republic Federal Savings Bank and First Annapolis Savings Bank.

Sources said more than 20 potential bidders initially stepped forward to review Perpetual's books, including Mellon Bank Corp. of Pittsburgh, which stated last summer that it was interested in acquiring the once-venerated S&L. In the end, sources said, Mellon and Crestar were the only two banks that bid on Perpetual's entire franchise. The winning bid of just $7.8 million reflects the depressed state of the local banking industry.

Bill Harris, president of Crestar's Washington region, said yesterday Crestar was not really "interested in buying Perpetual. What we were interested in doing was filling in some voids in our branch network in the Washington area."

He said the purchase "fits Crestar's strategy of having a greater presence in this area." Following the acquisition, Crestar will operate 103 branches in Maryland, Virginia and the District. The Richmond-based bank is considered one of the stronger institutions in the region, with $12 billion of assets.

Mellon spokesman Thomas Butch said Mellon's bid "contemplated preserving the bulk of the Perpetual franchise." He said "obviously, our bid was not as good as theirs {Crestar's}. ... We had to factor in the cost of running those branches." He said Mellon respected the federal Resolution Trust Corp.'s decision and continues to be interested in expanding its operations in the Washington area.

Analysts said the lack of interest in Perpetual was no surprise given the weakness in the local real estate market and the small pool of institutions that could truly afford to swallow a thrift of Perpetual's size.

Eric Billings, a banking analyst with Friedman, Billings and Ramsey, said to expect a big outside player to buy Perpetual was "unrealistic."

Federal regulators said several other bidders have expressed an interest in acquiring other pieces of Perpetual -- for example, its portfolio of mortgage-backed securities -- and more deals will be announced in the coming weeks.

In the meantime, the majority of Perpetual's 1,192 employees -- many of whom held onto the notion that they might be able to keep their jobs following a sale -- will be left in limbo over the next couple of weeks as regulators and Crestar sort out Perpetual's affairs. Perpetual Chairman John Morton said some employees were "misty eyed" yesterday.

All employees were fired by the government yesterday at 6 p.m., following the formal shutdown of the operation by the Resolution Trust Corp. (RTC), the agency charged with overseeing the cleanup of the nation's failed S&Ls. About 1,000 employees were immediately offered temporary employment by Crestar and the RTC to help ease the transition to the new owner.

However, sources said more than 700 of those employees ultimately will be left out of work and eligible for two weeks of severance pay. Crestar spokesman Barry Kohling declined to comment on how many employees ultimately would be let go, except to say that Crestar is likely to permanently hire only those workers in the acquired branches.

Perpetual's demise left hundreds of retirees without health benefits. It also has affected thousands of investors who bought Perpetual's stock and bonds over the years. Shareholders have watched their stock fall from a high of $20 in 1988 to just 87 1/2 cents before the government began the auction process and wiped them out. The thrift's largest stockholder was former chairman Thomas J. Owen, who is credited with building the thrift into the area's largest and whose family has been associated with Perpetual for decades.

Owen was forced by the government to resign his post in the summer of 1990, bringing an end to one of the Washington area's few remaining banking dynasties.

Colin Ferenbach, a New Yorker who has been representing Perpetual bondholders, called Perpetual's failure a tragedy.

"I think this is a very unfortunate situation, for investors, for taxpayers, for the metropolitan Washington area," Ferenbach said. "It's a tragedy for a great many employees of the bank, who are honest and hard working and will end up losing everything."

Employees said yesterday that even though they had spent six months preparing for "the big day," it didn't work out as they envisioned. After branches were closed and employees were gathered and told of the government's decision, many longtime staffers broke into tears.

"I knew this was the way it would happen, but when they told us -- when it finally sunk in -- I was devastated," said one employee, who asked not to be identified because, she said, the government told her not to talk to the press.

Many employees said they were shocked that Crestar won and that the Richmond-based bank was closing so many branches.

"We all were betting on Mellon," said one employee. "It never occurred to us that Crestar would do this. They're not taking over any of the crown jewels -- the mortgage operation -- it just doesn't make sense."

Another employee said the headquarters building had been chaotic for most of the afternoon, with rumors flying about who would acquire Perpetual and employees trying to gather together personal items and Perpetual memorabilia to take home.

"We didn't get anything accomplished all day," said one employee. "People were talking and trying to chase down the latest rumors. Some just sat at their desks, looking kind of depressed."

Morton said Perpetual employees needed to be realistic and "understand that you cannot blame the government. They cannot blame Crestar or Perpetual. This is a result of the industry consolidating."

Morton, who joined Perpetual in September 1990 and was charged with returning the thrift to profitability, said he was pleased with the way the government handled the situation.

Employees worked until late last night and will continue working through the weekend to help prepare for Monday. Many said they did not want to stick around, but felt the alternative was worse.

"A lot of people don't have jobs lined up," said one executive. "It's going to be difficult."

Ironically, Perpetual's closing also affects many RTC employees. One employee said many RTC workers banked at the Perpetual branch across the street from RTC headquarters.

"It is rather ironic," said Felisa Neuringer, an RTC official at Perpetual's headquarters last night. "We have people who are coming in here to close down their own institution. ... It kind of touches home. This affects everybody."

Staff writer Warren Brown contributed to this report.