NEW YORK (Reuters) - Washington Mutual Inc WM.N, the giant U.S. savings and loan beleaguered by mortgage losses, has put itself up for sale, sources familiar with the matter said on Wednesday.

A Washington Mutual (WaMu) bank branch is seen in New York City, September 17, 2008. REUTERS/Mike Segar

The Seattle-based thrift has hired Goldman Sachs & Co and Morgan Stanley to run an auction and potential suitors include Citigroup Inc C.N, HSBC Holdings Plc HSBA.L, JPMorgan Chase & Co JPM.N and Wells Fargo & Co WFC.N, one source said.

A sale is neither imminent nor guaranteed and the thrift is exploring other options, a second source said.

Representatives of Washington Mutual, TPG and the other banks declined to comment or could not immediately be reached.

Analysts have long expected the credit crisis would force weaker lenders into the arms of stronger rivals. A sale of Washington Mutual, the largest U.S. savings and loan, had been widely expected.

“Everything is for sale in the banking world these days,” said Ralph Cole, a portfolio manager at Ferguson, Wellman Capital Management in Portland, Oregon. “Washington Mutual should be shopping itself. You’d have to do due diligence on the balance sheet, but people understand the value of a branch network and deposit funding.”

On Monday, Bank of America Corp BAC.N agreed to pay $50 billion for Merrill Lynch & Co Inc MER.N, which has lost $19.2 billion in the last four quarters.

Wachovia Corp WB.N, which lost $9.11 billion in the second quarter, approached Morgan Stanley MS.N about a merger on Wednesday, according to published reports.

Washington Mutual overcame a critical hurdle to a merger earlier on Wednesday when its largest investor, David Bonderman’s private equity firm, TPG Inc, agreed to let the thrift raise capital, even if TPG’s holdings were diluted.

Washington Mutual shares rose 20 cents to $2.21 in after- hours trading after falling 31 cents to $2.01 during regular trading.

The shares have fallen 94 percent in the last year on concern about mortgage losses and that, in a worst case scenario, it might face the same fate as mortgage lender IndyMac Bancorp Inc IDMC.PK, which regulators seized in July.

VERY NEW CEO

Washington Mutual has lost $6.3 billion in the last three quarters and was downgraded to junk status by Moody’s Investors Service and Standard & Poor’s.

The thrift has projected $19 billion of mortgage losses through 2011. Last week, Washington Mutual said it expected to set aside $4.5 billion for credit losses in the third quarter, down from the second quarter’s $5.9 billion, and that it expected to remain well-capitalized.

A possible sale surfaced just nine days after Washington Mutual named Alan Fishman chief executive, replacing the ousted Kerry Killinger. Fishman used to run Independence Community Bank Corp, a Brooklyn, New York lender acquired in 2006 by Sovereign Bancorp Inc SOV.N.

Analysts have said the thrift might not find a buyer until there is more clarity about its mortgage losses.

“You would have to deal with the accounting, you would have to mark everything to market,” said Albert Yu, a portfolio manager at Clover Capital Management Inc in Rochester, New York.

JPMorgan Chief Executive Jamie Dimon is considered the most likely acquirer, given his goal of expanding in retail banking in the western United States. Washington Mutual ended June with $309.7 billion of assets and 2,239 branches.

TPG agreed to waive a provision requiring Washington Mutual to make up any dilution if the thrift raised more than $500 million of equity for less than $8.75 per share, or sold itself for less than that price.

The private equity firm earlier this year acquired a $2 billion stake in Washington Mutual at about $8.75 per share, as part of a $7 billion capital raising by the thrift.

Regulators did not ask TPG to waive the provision, but the firm did so because it could have dissuaded a bidder, a source said.