A Senate subcommittee is nearing completion of a long-awaited report on the role Wall Street banks played in creating complex securities that fueled the meltdown of the housing market, according to the Wall Street Journal.

The report by the Senate Permanent Subcommittee on Investigations, which has been in the works for months, will include potentially embarrassing emails and internal communications from investment banks such as Goldman Sachs and Deutsche Bank AG, the Journal said.

It also will discuss a little-known dispute between Goldman and Morgan Stanley that developed in 2008 over one complex subprime-mortgage backed security called Hudson Mezzanine Funding, the newspaper said.

The subcommittee learned that Morgan Stanley lost money on the collateralized debt obligation that Goldman had a hand in arranging and marketing, the Journal said. The dispute between the rival investment banks got so heated that Morgan Stanley considered suing Goldman over its losses, it said.

The Senate's investigations subcommittee normally follows up its hearings with reports that outline the findings and recommend legislative reforms.

An aide to Senator Carl Levin, a Democrat who heads the subcommittee, declined to comment on the report.

Late last year, two people familiar with the subcommittee told Reuters that they expected the report to be finished in early 2011 and said it would contain more information than surfaced during last year's series of subcommittee hearings.

An all-day hearing last spring on the role Goldman played in creating and marketing several CDOs - complex securities constructed from a pool of subprime mortgaged-backed bonds -- drew particular attention.

A number of current and former Goldman executives testified at the hearing, including Goldman CEO Lloyd Blankfein.

(Editing by Vicki Allen)

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