KKR Financial Holdings, an affiliate of Kohlberg Kravis Roberts, the private equity giant, said today that it would lose about $40 million (£20 million) after selling $5.1 billion in residential mortgage loans and gave warning of further possible losses amounting to another $250 million.

Shares in KKR Financial Holdings, which operates as a real estate investment trust, fell by nearly a third on the news.

The buyer of the residential mortgage portfolio was not identified.

The parent company KKR indicated yesterday that it was continuing with plans to float, despite severe losses last week in equity and debt markets and a warning that the credit crunch may lead to reduced returns for its own investments.

The buyout firm, which had said in June that it planned to raise $1.25 billion, has still not committed to a date for a float.

KKR Financial Holdings said that “unprecedented disruptions” in the US mortgage market were to blame for its losses.

The fallout from the turmoil in the US sub-prime mortgage market has rocked financial institutions across the US, Asia and Europe in recent days.

On top of the confirmed losses, KKR Financial added that a $200 million equity investment in a remaining $5.8 billion portfolio of mortgage-related assets also risked being wiped out.

It also gave notice of a further $50 million in possible liabilities.

It added in a statement: “In light of the level of disruption and volatility in commercial paper and broader credit markets, estimates of potential exposure are necessarily subject to future revision.”

The stock fell $4.59 to $10.68 in early trading on the New York Stock Exchange.

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