America’s housing woes kicked another major Wall Street firm into touch yesterday as Bear Stearns announced its lowest quarterly profit in five years.

The group reported a 61 per cent drop in third-quarter net income to $171 million (£85 million), as it reeled from a $200 million charge relating to the collapse of two hedge funds in the summer and declining valuations in its debt investment portfolio.

The biggest casualty was Bear Stearns’ fixed income division, which recorded an 88 per cent drop in revenues to $117.6 million. Declining asset valuations were exacerbated by a slump in mortgage and credit-related trading.

The group’s net revenue, or total revenue minus interest costs, fell by 37 per cent to $1.33 billion, as investment banking fees dropped by 9 per cent to $211 million.

But the group’s profits were helped by a strong performance from its equity sales and trading division, which reported a 53 per cent increase to a record $719 million.

Meanwhile, the clearing unit, which includes the provision of brokerage services for hedge funds, jumped by 30 per cent to $332 million, another record.

Bear Stearn’s results come a day after Morgan Stanley announced a $940 million charge relating to the credit crunch, that took its third-quarter profit on continuing operations down by 7 per cent to $1.47 billion.

That followed Lehman’s admission on Tuesday that the credit crunch had cost it about $700 million in the third quarter, leaving net income at America’s biggest underwriter of mortgage bonds down by 3 per cent, at $887 million.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive