JP Morgan Chase, the American banking giant, announced that it would buy the bulk of Washington Mutual's operations for $1.9 billion after heavy losses on high-risk sub-prime mortgages bought the group to the brink of collapse.

In a hastily convened late-night press conference, JPMorgan said it would take control of WaMu's $900 billion of retail deposits and its more than 2,000 branches after US regulators seized control of the savings and loans institution, in what is the largest ever banking failure in US history.

Federal regulators said they seized control of WaMu because it has suffered an exodus of $16.7 billion in deposits since its debt was downgraded to junk status on Monday last week, as nervous savers withdrew their money. This left the group "with insufficient liquidity to meet its obligations," putting it in "an unsafe and unsound condition to transact business," according to the Office of Thrift Supervision, one of its two regulators.

As news of the deal leaked out, shares in Washington Mutual plunged 53 per cent in after-hours trading on Wall Street on fears that the transaction would wipe out most of their ownership of the company.

It is the second time in a year that JP Morgan Chase has rescued a smaller failing rival. In February, it acquired Bear Stearns, the collapsed Wall Street bank.

The Office of Thrift Supervision and the Federal Deposit Insurance Corporation, WaMu's two regulators, were heavily involved in orchestrating the sale of WaMu, which has already suffered about $18 billion of dollars of losses on high-risk sub-prime mortgages and predicts it will lose $19 billion more over the next two and a half years.

A number of banks, including Citigroup Inc., Wells Fargo & Co. and Banco Santander SA, also pored over WaMu's books, but none made an offer.

WaMu had about 2,300 branches and $182 billion of customer deposits at the end of June. Its $310 billion of assets dwarf those of Continental Illinois Corp., previously the largest failed bank, which had $40 billion ($83 billion in 2008 dollars) when it was taken over in 1984.

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