Written off by Wall Street investors, Washington Mutual Inc. put itself on the auction block Wednesday, looking for a buyer strong enough to absorb the huge mortgage loan and credit card losses racked up by the nation's largest savings and loan.
Federal regulators were working to help broker a deal, concerned about the effect a failure could have on the bank insurance fund overseen by the Federal Deposit Insurance Corp., said people who were briefed on the effort but not authorized to speak publicly.
The Seattle-based thrift had about $143 billion in insured deposits as of June 30, about three times the size of the insurance fund.
"If it can be sold to someone, that would provide assurance to the depositors and also keep from depleting the FDIC insurance fund," one person familiar with the talks said.
Potential bidders included megabanks Wells Fargo & Co. of San Francisco, JPMorgan Chase & Co. of New York and HSBC Holdings of London. None returned calls for comment, nor did WaMu.
At a WaMu branch in downtown Los Angeles, several customers expressed anxiety about the bank's financial health.
"I'm going to watch what happens and, if I have to, take my money out of this bank," said Javier Sanchez, who works as a valet in West Hollywood.
Jean Yen said she had an account for her import business at giant Bank of America and was prepared to move her personal account there from WaMu.
"It's just a couple of thousand dollars, so I'm not too worried, but with all that's going on, I'm thinking of switching," she said.
The thrift has 700 branches in California and 2,300 nationwide.
The search for a buyer for the nation's sixth-largest banking concern added to the monumental events transforming the U.S. financial system, including the Federal Reserve's $85-billion rescue of insurer American International Group Inc. and Bank of America Corp.'s takeover of Merrill Lynch & Co.
Late Wednesday, Wall Street securities firm Morgan Stanley was reportedly in merger talks with Wachovia Corp. of Charlotte, N.C., the fourth-largest U.S. bank by assets.
But Wachovia's battered share price -- $9.12 a share Wednesday, compared with $51.80 in October -- made it a potential takeover target as well in an atmosphere of rapid consolidation.
Analyst Fred Cannon of Keefe, Bruyette & Woods Inc. in San Francisco said WaMu "probably had enough capital to work its way through its immediate financial challenges."
But he added, "It's increasingly clear that isn't enough to win the confidence of investors."
Given regulators' demands for additional capital and the sinking stock price, a sale was the only viable option, he said.
WaMu has seen its stock decline 95% over the last year, falling 31 cents, or 13%, to $2.01 on Wednesday.
It had spent the week denying rumors that its demise was imminent, saying that despite a large portfolio of troubled subprime and other risky mortgages, along with losses on credit cards, its net worth was solid and it was capable of quickly raising $50 billion to meet any claims.
But in an acknowledgment of its dire straits, private equity firm TPG, which had injected $7 billion in capital into WaMu in June, removed a major obstacle to a sale or another infusion of capital. Fort Worth-based TPG waived a clause in its investment agreement that would have required a WaMu buyer or new investor to pay billions of dollars to TPG.
"Our goal is to maximize the bank's flexibility in this difficult market environment," TPG said in a statement.
WaMu retained Goldman, Sachs & Co. to handle the search for a buyer. Goldman had shopped WaMu around in March, which led to the investment by TPG.
Potential bidders in that previous round included additional private investment groups and banks. Among them were Wells Fargo, HSBC and JPMorgan. Wells and HSBC declined to bid, and only JPMorgan made an offer, two people familiar with the process said.
WaMu lost $3.3 billion during the second quarter. It said that its problems with subprime mortgages to the riskiest borrowers were "flattening out" but that it was experiencing surging losses on pay-option adjustable-rate mortgages, the controversial loans that allow borrowers to pay so little that their loan balances go up.
Of the $181.5 billion in single-family residential mortgages that WaMu had on its books as of June 30, $52.9 billion were option ARMs, and $16.1 billion were subprime loans to the riskiest borrowers.
WaMu's problems illustrate how the U.S. savings and loan industry ran into trouble during the housing boom by joining nonbank lenders such as Ameriquest Mortgage Co. and New Century Financial Corp. in writing high-risk mortgages as housing prices peaked.
Ameriquest closed up shop and New Century collapsed into bankruptcy more than a year ago. But not until this year did the better-capitalized savings and loans hit the skids.
At a downtown WaMu branch Wednesday, Steve Deyer said he had three subprime loans from WaMu on two homes, one of which is set to adjust next year.
"I've been able to make payments on all of them so far, thank God," said the Los Angeles architect.
BEGIN TEXT OF INFOBOX
* Chief executive: Alan H. Fishman
* Headquarters: Seattle
* Employees: 43,200
* Assets: $309.7 billion
* Founded: 1889
* Branches and lending offices: 2,300, including 700 in California
Source: Times research