updated 9/23/2008 7:40:20 PM ET 2008-09-23T23:40:20

As lawmakers in Congress hash out the details of the government's proposed rescue plan for troubled banks, potential suitors of ailing thrift Washington Mutual Inc. are waiting to pounce.

Last week, a sale of the nation's largest savings and loan seemed imminent, as Goldman Sachs Group Inc. was brought in to assist with a transaction and a major investor removed a potential roadblock to a sale.

But after the government announced Friday it was formulating a plan to help financial institutions remove billions of bad mortgage debt from their books, momentum toward an acquisition seemed to halt, with the banking industry waiting for congressional action on the proposal.

Industry experts say the government's proposed bailout could work in WaMu's favor.

"It's not like WaMu is dead and buried," Roy Smith, a professor of finance at the Stern School of Business at New York University, said in an interview. "If anything, it looks better than it did last week."

Though few details have been disclosed, the new plan for the government to buy up to $700 billion in toxic mortgage-related assets could have a positive effect for the Seattle-based bank by halting the price fall of those assets — which are at the heart of WaMu's problems.

"I thought a sale (of Washington Mutual) was going to be difficult until this proposal," said Fox-Pitt Kelton analyst Howard Shapiro.

Still, potential suitors remain on the sidelines, likely waiting for the government to make the first move on WaMu in an effort to get the best possible deal.

"The government doesn't want to take them over; no question about that," said Smith. The thrift's future "is largely left to the bidders in the auction that is being organized for it."

Potential buyers are also waiting to see how much WaMu, like other banks, would have to write down the cost of its soured loans, and the impact it would have on its already thin balance sheet.

JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., HSBC, Banco Santander and Toronto-Dominion Bank have all been mentioned as possible suitors. A representative at Banco Santander was not immediately available for comment Tuesday. The other banks declined to comment.

FDIC spokesman Andrew Gray also declined to comment on any possible action the agency might be taking with regard to Washington Mutual, and bank officials have refused to address market rumors and speculation about a sale.

Federal regulators have the authority to push the management of troubled banks and thrifts toward seeking buyers, with the threat of closure at their disposal.

At the same time, a takeover by the FDIC would allow another bank to come in and buy the deposits and branches of Washington Mutual — considered the most valuable part of the thrift — while the government would have to sell off its holdings of soured loans.

The FDIC, in general, is responsible "for ensuring a least-cost resolution" of a troubled bank, said Michael Stevens, senior vice president for regulatory policy at the Conference of State Bank Supervisors.

Enactment of a bailout plan "could alleviate some of the pressure" on balance sheets of problem banks generally, but it may come too late for financial institutions whose capital is too far eroded to be able to effectively pursue sales of assets, Stevens said.

WaMu has seen its stock price plummet 76 percent this year, in the face of mounting losses tied to troubled mortgage holdings.

Last Wednesday, private equity firm TPG, which led a $7 billion investment in the bank in April, waived a provision of its agreement that would have required a potential buyer or other major investor to pay TPG hundreds of millions of dollars in addition to whatever money was injected into WaMu. The move was seen as helping a possible sale or capital investment.

On Monday, Moody's Investors Service downgraded the financial strength rating of WaMu's main bank subsidiary to "E," its lowest rating, saying the thrift's capital is insufficient to absorb its mortgage losses.

"It is important to note that Moody's rating actions do not affect the safety of customer deposits, which are insured up to the limits allowed by the FDIC," the bank said in a statement.

Shares of WaMu slipped 13 cents, or 3.9 percent, Tuesday, closing at $3.20.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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