The largest bank failure in the history of the US has lead to JP Morgan Chase purchasing Seattle-based deposit taking institution, Washington Mutual, with total assets of over $307 billion, for $1.9 billion.

US regulators seized WaMu late last night and appointed the Federal Deposit Insurance Corporation as receiver. Then the FDIC held a bidding process that resulted in the acquisition by JPMorgan Chase.

An outflow of deposits began on 15 September 2008 totalling $16.7 billion – according to a statement from the US office of Thrift Supervision.

“With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business,” a statement on the OTC website said.

“The housing market downturn had a significant impact on the performance of WaMu’s mortgage portfolio and led to three straight quarters of losses totalling $6.1 billion,” said OTS Director John Reich.

The fate of WaMu played out as the US Congress debated a bail out package for the financial system in a crisis that has so far lead to some spectacular collapses of Wall Street giants, including Bear Stearns in March, that was similarly absorbed by JPMorgan.

The price JP Morgan is likely to pay for WaMu is eventually likely to be much higher than the $1.9 billion sale price because the bank will write down about $31 billion of the bad loans, according to JP Morgan.

The firm said it would raise additional capital in connection with the transaction to maintain its capital position.

WaMu’s $307.02 billion in assets in 2,239 retail branch offices throughout 15 states, combined with JP Morgan’s existing branch network will give the institution 5,400 branches in 23 states, making it the nation's second-largest branch network, reaching 42 per cent of the US population.

"This deal makes excellent strategic sense for our company and our shareholders.  Our people have worked hard to build a strong franchise and balance sheet - making this compelling transaction possible," said Jamie Dimon, chairman and chief executive in a statement.

He added: "We look forward to welcoming Washington Mutual's employees to JPMorgan Chase and working with them as we build a great company together.”

WaMu had 43,198 employees at 30 June 2008.

The OTC said the deal would have no impact on the bank’s depositors or other customers and the business would proceed uninterrupted and bank branches would open on Friday morning as usual.

WaMu had four business segments: the Retail Banking Group, the Card Services Group, the Commercial Group and the Home Loans Group.  It was a leading originator and servicer of both single- and multi-family mortgages and a major issuer of credit cards.