The worst bear market for higher-risk debt in more than two years has left heavyweight Wall Street investment banks stuck with at least $11 billion of loans and bonds that they cannot shift, it is reported today.

The banks, which have personally funded at least five leveraged buyouts (LBOs) over the past month, include Goldman Sachs and JPMorgan Chase, according to Bloomberg.

Bankers, who only a few months ago boasted that demand for high-yield assets was so great that they would have no problem raising debt for a $100 billion LBO, are now paying for their overconfidence, the news agency says.

The cost of tying up their own capital may curb earnings and stem the flood of LBOs, which generated a record $8.4 billion in fees during the first half of 2007, according to Brad Hintz, the former chief financial officer at Lehman Brothers.

"The private equity firms, being very tough negotiators, are unlikely to let the banks off the hook," Martin Fridson, chief executive officer of high-yield research firm FridsonVision in New York told Bloomberg.

"They'll say that's your problem and that's why we're paying you: to take risk."

As the market began to turn sour last month, Goldman Sachs, Citigroup, Lehman and Wachovia had to buy $725 million of bonds that the Tennessee-based Dollar General was selling to finance the Kohlberg Kravis Roberts purchase of the company for $6.9 billion, according to Bloomberg.

Those bonds are probably worth 94 cents on the dollar, or $43.5 million less than when they were sold on June 28, according to Justin Monteith, an analyst at the high-yield research firm KDP Investment Advisors in Montpelier, Vermont.

KKR completed the acquisition of Dollar General on July 9.

Strategists at Bear Stearns estimate that about $290 billion of deals still need to obtain funding, including those of First Data, a credit-card processor based in Colorado, and TXU Corp, a US energy company.

The question is "how much yield are the brokerage firms going to have to eat?,'' Mr Hintz, who is now an analyst at Sanford Bernstein in New York, said.

"What they've committed to is not current trading rates in the market. If I have a problem it doesn't mean I can't place the problem, but it's going to cause a mark-to-market loss.''

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