Wall Street's Bear Stearns has revealed that it is facing civil charges by the US Securities and Exchange Commission.

While declaring a profit fall of 79% in its first quarter, ahead of the liquidity crisis that led to the investment bank's purchase by JPMorgan Chase, the firm said it had also received a notice from the SEC "in connection with the bidding for various financial instruments associated with municipal securities".

Bear Stearns expects to respond to the charges before the SEC makes a formal recommendation.

Net profits fell to $115 million (£58.3 million) from $554 million a year earlier. Net revenue, after interest costs, declined 40% to $1.48 billion. Results included about $600 million of writedowns tied to mortgages and leveraged finance that contributed to a 94% drop in revenue from fixed income, a traditional Bear speciality.

Meanwhile, Wachovia, the fourth-largest US bank, as expected sold $7 billion of stock and cut the dividend after bad home loans in California triggered a first-quarter loss of $393 million compared with a profit of $2.3 billion a year earlier.

Wachovia stock fell the most since the 1987 crash in New York trading after it disclosed plans to sell shares at a 14% discount to last week's closing price. It later recovered slightly to end the day down 8.1%.