Bear Stearns reported a steep drop in third-quarter profit Thursday, as the investment bank felt the pain of the subprime mortgage mess and volatility in financial markets.

New York-based Bear said quarterly net income for the period ended in August sank 61 percent to $171.3 million, or $1.16 a share, from the year-earlier period. Revenue fell to $1.3 billion from $2.13 billion last year.

Shares of Bear fell about 2 percent in premarket trading on the results, which missed Wall Street’s estimates. Analysts surveyed by earnings tracker Thomson Financial had expected earnings of $1.78 a share on revenue of $1.64 billion.

Bear’s fixed-income business, which accounted for about 44 percent of its total revenue in the year-ago period, took the biggest hit. Revenue in the segment fell 88 percent during the quarter to $118 million.

“A general re-pricing of risk in the market led to significant reductions in both mortgage and credit-related revenues as volumes decreased while asset values declined,” the company said in a statement.

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