Bear Stearns funds face wind-down

Bear Stearns is the fifth-largest bank in the US

US bank Bear Stearns, which had to bail out two hedge funds in June with $1.6bn (£800m), now says the funds have "very little value".

The bleak message was made in a letter to investors in the funds, which had bet heavily on risky sub-prime loans.

Bear Stearns Asset Management said it "will seek an orderly wind-down of the funds over time", the letter stated.

At the end of June, Bear Stearns made management changes in an attempt to restore investor confidence.

Bear Stearns brought over Jeffrey Lane from rival banking group Lehman Brothers to help repair its business.

Low incomes

The bank had to bail out its funds after they made bad bets on securities that were backed by sub-prime mortgages.

Defaults on the loans, which are housing loans given to people on low incomes or with a poor credit rating, have increased as the US housing market has faltered and the interest rates charged on the loans have leapt.

In its letter, Bear Stearns said: "The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007."