(Updates with additional details, FDIC call)

WASHINGTON -(Dow Jones)- JPMorgan Chase & Co. (JPM) acquired Washington Mutual Inc. (WM) via a bidding process, after the thrift became the biggest bank failure in U.S. history, regulators announced late Thursday.

"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the Office of Thrift Supervision said in a release.

The Federal Deposit Insurance Corp. took over as receiver of the thrift and held a bidding process that resulted in the takeover by JPMorgan, it said.

JPMorgan said in separate releases that it would pay the FDIC about $1.9 billion for all deposits, assets and certain liabilities of Washington Mutual's banking operations. It also plans to sell $8 billion in common stock.

That payment means the FDIC's national deposit-insurance fund won't take a hit from WaMu's demise, said FDIC Chairman Sheila Bair in a conference call with reporters.

"There will be no cost to the deposit insurance fund," she said.

The acquisition of the $307 billion thrift marks the latest upheaval in the U.S. financial crisis that has claimed some of the biggest firms Wall Street this month, including government bailouts of insurer American International Group Inc. (AIG) and mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE).

The Seattle-based company, which has been wracked by heavy losses in the mortgage crisis, suffered outflows of deposits totaling $16.7 billion since Sept. 15, the OTS said. WaMu, the largest savings association overseen by the agency, had more than $188.3 billion in deposits as of June 30, with 2,200 branch offices in 15 states.

"The housing market downturn had a significant impact on the performance of WaMu's mortgage portfolio and led to three straight quarters of losses totaling $6.1 billion," OTS Director John Reich said in the release, saying that conditions had deteriorated in the last three months.

The ownership change won't impact the bank's depositors or other customers, the OTS said, with branches scheduled to open Friday as usual.

However, while senior debt holders will have first claim to any asset recovery, shareholders could be wiped out.

-By Tom Barkley, Dow Jones Newswires; 202-862-9275; tom.barkley@dowjones.com

  (END) Dow Jones Newswires
  09-25-08 2216ET
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