America’s sub-prime mortgage melt-down continued to wreak havoc yesterday, resulting in more than 6,000 job cuts in a leading home-loan provider and a potential ratings downgrade for one of Wall Street’s biggest firms.

American Home Mortgage Investment (AHM), the tenth-biggest home-loan provider in the United States, said that it would retain only 750 of its 7,000 staff as it shut down all but a few of its operations to “preserve the value of its remaining assets”.

AHM also lost its lending licence in four US states including New York.

Earlier this week, AHM, which specialises in less risky prime and near-prime mortgages, said that a surge in defaults had prompted significant writedowns on its loan book. The next day, the group pulled the plug on hundreds of millions of dollars in loans already agreed because its credit lines had been cut.

“The disruption in the credit markets in the past few weeks has been unprecedented in the company’s experience and has caused major writedowns of its loan and securities portfolios,” the company said.

AHM’s shares, which began the week at $10.47, fell as low as $0.63 yesterday, a 94 per cent drop on a stock that traded just below $36 in February.

Elizabeth Duke, a past chairman of the American Bankers’ Association and a nominee to the Federal Reserve Board, acknowledged yesterday that America’s mortgage woes will go on. She said: “Unfortunately, I do have some experience with troubled debt and that specific issue will probably get a lot worse before it gets better.”

Bear Stearns’s credit rating came under scrutiny as Standard & Poor’s cut its outlook to “negative”, meaning that it could be downgraded in the next six months. Once the most venerated mortgage investor on Wall Street, Bear Stearns became the first high-profile victim of the sub-prime crisis in June when it emerged that two hedge funds that it ran had collectively lost more than $1.5 billion (£734 million).

The firm’s present A-plus credit rating, the fifth-highest investment grade, is under threat because of concerns that mortgage losses could affect profits both directly and indirectly.

S&P said: “We believe Bear Stearns’s reputation has suffered from the widely publicised problems of its managed hedge funds, leaving the company a potential target of litigation from investors who have suffered substantial losses.”

First NLC Financial Services, another US sub-prime lender, said it has shed nearly half its 1,350 employees.

The credit squeeze also tightened its grip in Europe. AXA, the French insurance group, offered to cash out investors in a mutual fund that lost nearly $500 million last month on bonds backed by sub-prime mortgages in the US.

AXA said that it would buy back at their present estimated value the shares in a $1.2 billion fund that lost 40 per cent of its value in July. This would leave investors with a loss, but would limit the scope for loss should the insurer be forced into a fire sale to meet the surge in redemption requests.

The insurer also offered to buy back shares in two other mutual funds that it runs, which each lost about 13 per cent of their value in the first three weeks of July.

In Germany, the third-largest mutual fund manager capped a bad week for the country’s credit sector when it halted redemptions from a €950 million (£641 million) fund with exposure to sub-prime-related securities. Union Investment Asset Management, based in Frankfurt, made its decision after clients withdrew about €100 million in the past month. Only 6 per cent of the fund is in securities related to sub-prime mortgages and the level of redemptions indicates the growing fear that investors now feel about the credit markets as a whole.

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