Washington Mutual (WaMu) has become the biggest US bank to fail, as regulators were forced to take control and sell off the mortgage lender.

The Office of Thrift Supervision (OTS) sold its assets to JPMorgan Chase for $1.9bn (£1bn) after $16.7bn of deposits had been withdrawn in 10 days.

Regulators were quick to reassure customers that WaMu would be trading as usual despite the change of ownership.

WaMu was hit by mortgage defaults the collapse of the US housing market.

“For bank customers, it will be a seamless transition,” said Stella Blair, chairman of the Federal Deposit Insurance Corporation (FDIC).

“Bank customers should expect business as usual come Friday morning.”

WASHINGTON MUTUAL

2,239 branches in 15 states
43,198 employees on 30 June
Set up in 1889

“With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business,” the OTS said.

The bank had about $307bn of assets but only about $188bn of deposits, which meant it had to raise funding on money markets, which has become increasingly expensive.

Additional funding

It raised an extra $7bn of capital from a consortium led by the private equity group TPG in April.

If WaMu had just failed then depositors would have been compensated by the FDIC, so the sale to JPMorgan may be a positive step.

“There was some concern that if a bank the size of WaMu failed the FDIC fund would not be adequate to meet the task and would require additional funding from the government,” said David Resler, chief economist at Nomura Securities.

Instead, the responsibility for the deposits has been transferred to JPMorgan Chase.

“That means the FDIC fund is intact and can be used for other closures if necessary,” Mr Resler added.

Sub-prime lending

It is less than three weeks since WaMu dismissed its chief executive Kerry Killinger, who it blamed for the bank’s expansion into sub-prime and other comparatively risky lending.

Sub-prime mortgages are offered to borrowers with inferior credit records or unpredictable incomes.

WaMu is JPMorgan’s second big fire-sale acquisition since the start of the credit crunch. It bought Bear Stearns in March.

WaMu launched an upbeat advertising campaign in February

The WaMu deal means it is now the second-biggest US bank, with 5,410 branches in 23 states.

“This deal makes excellent strategic sense for our company and our shareholders,” said Jamie Dimon, chairman of JPMorgan Chase.

Before WaMu’s closure was announced, it had a stock market value of $2.9bn.

In February this year, WaMu unveiled a new Whoo Hoo! advertising campaign, aiming to “capture the essence of what it feels like to bank at WaMu”.

News reported by The BBC