The credit crisis is set to force Wall Street's top investment banks to take big asset writedowns and reveal credit crunch wounds to some of their key businesses when they brief investors on third-quarter results next month.

Analysts and investors believe that banks, led by Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns, are preparing to unveil falls in fixed-income trading, debt securities and mortgage securities.

"Business has been bad this summer," Jon Fisher, who helps to manage $1.2 billion for Fifth Third Asset Management in Minneapolis, told the US business television channel CNBC.

He added that the market was "negative in June, negative in July and trending flat, at best, for August. The value of any debt instruments on their books, or any debt deal they were working on, has to be reduced."

The sub-prime mortgage-driven credit rout had not kicked in when the main Wall Street players delivered their second-quarter numbers.

But even in mid-June, Goldman Sachs and Bear Stearns both revealed big revenue drops at operations that trade mortgage securities.

Goldman, a big player in structured trading, told investors that revenues at its fixed-income, commodities and currency division had slid 27 per cent in the second quarter to $3.37 billion. Since then, Goldman has also been forced to refinance one of its main hedge funds.

Bear Stearns said in June that revenues at its fixed-income unit had slumped just over a fifth to $962 million. The bank's move to rescue two of its hedge funds in late June marked the beginning of the credit downturn.

The Securities and Exchange Commission, the American regulator, has been monitoring the investment banks to see whether they value their own trading books the same as they do those of their clients. It is understood that the Financial Accounting Standards Board (FASB), the US accountancy regulator, is also focused on how banks value illiquid assets.

Robert Herz, the chairman of FASB, told Reuters last week: "August 31 is coming up and we'll have to see what happens."

Lehman set the tone last week when it revealed plans to shut its sub-prime division, BNC Mortgage, resulting in 1,200 job losses and a $52 million charge against earnings.

Ben Wallace, an analyst at Grimes, which manages $725 million, told CNBC: "We haven't yet seen the impact on the underlying business at investment banks. The question is if they had the same losses in their proprietary trading. But no one knows what's going on in there. It's faith-based investing."

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