Bear Stearns hit by credit crisis

Bear Stearns had to bail out two hedge funds earlier in the summer

Bear Stearns' profits took a big hit from its exposure to sub-prime mortgages and the disruption to debt trading over the summer.

The US bank's profits between June and August fell 61% compared with the same period last year to $171.3m (£85.4m).

It was the worst-hit of the big four US investment banks reporting this week.

Bear Stearns was one of the first banks to admit problems linked to sub-prime mortgages, after two of its hedge funds had to be bailed out.

It later warned investors that they would get little, if any, money back from the two funds.

Bearing the brunt

Also on Thursday, Goldman Sachs became the last of the big four US investment banks to release results.

Its three-month net profit rose 79% compared with the same period in 2006 to $2.85bn.

The figures benefited from its sale of Horizon Wind Energy to Energia de Portugal for $2.74bn.

Earlier in the week, Lehman Brothers reported a 3% fall in profits, while Morgan Stanley said its profits had fallen by 17%.

There is great interest in how hard the big American banks have been hit by the sub-prime mortgage crisis - and the third-quarter results are the first hard evidence of the brunt they are having to bear.

The sub-prime crisis was caused by record levels of defaults by people with poor credit histories or low incomes who had been lent money to buy houses.

The amount of debt of questionable value in the market caused problems for banks that specialise in buying and selling it.