WASHINGTON — JPMorgan Chase & Co. is in advanced discussions to buy Washington Mutual, sources said Friday.

While a deal has not been struck, and could fall apart, sources said negotiations are ongoing at the highest levels of both companies, including James Dimon, the chairman and chief executive of JPMorgan, and Alan Fishman, the newly-installed CEO of Wamu.

A spokesman for JPMorgan Chase declined to comment. A spokesman for Wamu was not immediately available for comment.

If a deal is struck, it would remove a potentially huge problem facing the government. Regulators have already intervened to save Fannie Mae, Freddie Mac, and Bear Stearns Cos., and are reportedly aiding the sale of Lehman Brothers Holdings Inc.

The talks between JPMorgan Chase and Wamu do not involve the government, sources said. Observers had said earlier this week that a government-assisted transaction may be necessary if Wamu did not recover or find a buyer soon.

Sources cautioned the situation remains in flux and other bidders for the Seattle-based thrift company could emerge. But knowledgeable sources were optimistic the deal would come together.

"It's quite plausible," said one source. "It's a possibility this weekend."

JPMorgan Chase pursued a deal with Wamu in March, but talks fell apart after the thrift received a $7 billion capital infusion from TPG Inc. in April. Sources said JPMorgan Chase has remained interested in buying Wamu since that time.

Wamu holds $309 billion in assets, and roughly $190 billion in deposits. A collapse of the thrift company would have a severe impact on the Deposit Insurance Fund.

Wamu has had a long week. On Monday, the company announced that Kerry Killinger, its CEO since 1990, was leaving the company. It also revealed that it had entered into a memorandum of understanding with the Office of Thrift Supervision and "committed to provide the OTS an updated, multi-year business plan and forecast its earnings, asset quality, capital and business segment performance."

In an effort to show that its capital levels are solid and that its credit problems are stabilizing, Wamu released a mid-quarter update late Thursday and said its third-quarter provision for loan losses will fall by $1.4 billion from the second quarter, to $4.5 billion. It also said its liquidity is stable, at $50 billion, and that it is "well-capitalized."

The thrift company posted a $3.3 billion second-quarter loss, the largest of three straight quarterly losses, and built up its reserve for loan losses by nearly 80% during, to $8.5 billion.

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