CREDIT MARKETS REELED IN JULY AND August amid worries over subprime mortgage defaults, bringing issuance of bonds backed by home loans and other financial assets to a virtual standstill. These markets, created in the early 1990s by Wall Street financial engineers, kept the cash registers ringing for investment banks, which raked in big fees for structuring asset-backed and mortgage-backed securities and selling them to investors. According to Dealogic, Lehman Brothers garnered the most fees from these sectors for two years running. In the past 12 months, it has derived 44 percent of its debt-underwriting revenue from ABS and MBS, making it among the firms most vulnerable to the current slowdown. Others that are highly dependent on these markets include Bear, Stearns & Co., Royal Bank of Scotland and Countrywide Securities Corp., which mostly underwrites MBS for parent lender Countrywide Corp.
