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Banks that are heavily dependent upon CDO underwriting may face a double whammy if demand for these structured products wanes.

The esoteric financial instruments known as collateralized debt obligations have thrust their way into popular market consciousness in recent weeks as worries mount about a potential implosion of pumped-up credit markets. Vehicles that securitize portfolios of corporate loans, mortgages and other debt and sell them in a continuum of tranches ranging from ultrasafe to ultrarisky, CDOs have fueled the acquisition boom by buying some 80 percent of the loans issued to finance leveraged buyouts.

Investment banks receive fees for underwriting CDOs and benefit from the liquidity these products create for the debt that makes LBOs possible. According to Dealogic, several of the top ten underwriters rely on CDOs for a big piece of their fixed-income revenues. Those most dependent on CDOs are Merrill Lynch & Co. and Wachovia Corp., at 10 percent each, followed by UBS at 9 percent and Bear, Stearns & Co. at 8 percent.