HONG KONG/NEW YORK - HOPES among Wall Street's big banks that a booming Asian market would help them through hard times are growing dim, as much of the deal flow in China and beyond has ground to a halt.

Huge fees from Asian deals helped prop up profits at some Western banks last year after the credit crunch took its toll in North America and Europe.

But, after a grim first quarter for investment banking fees in Asia, the flow of deals has not picked up and equity offerings have fallen victim to the long reach of the global credit crisis.

China's stocks have fallen by half in the last six months, while India's growth is also showing signs of slowing.

Worries from Mumbai to Shanghai come after many investors argued that strong emerging markets would help sustain share prices at big investment banks.

'The more you get issues like China, the more that argument breaks,' said Adam Compton, co-head of global financial stock research at RCM Global Investors in San Francisco, which manages about US$150 billion (S$202 billion) of assets.

Equity capital market proceeds in Asia so far this month have slumped by more than two-thirds to US$7.5 billion from the same period last year, according to Thomson Reuters data.

Also this month, the number of IPOs has been just over half last year's total, and IPO proceeds are down 85.8 pr cent to US$1.6 billion, according to the data, which includes Australia but excludes Japan.

To be sure, many of Wall Street's Asia groups are faring better than at home, where they are still sorting through the subprime mortgage-related wreckage.

China and India's economies, while downshifting, are still strong, and foreign investors are pouring billions of dollars into the region. As a result, banks' wealth management and asset management divisions should keep fees flowing, thanks to surging personal wealth in Asia.

Debt issuance and M&A advisory fees are holding steady so far this quarter, and private equity and sovereign wealth capital pools can step in where the IPO market and banks can't.

For all the deal-making last year, Asia accounts for only a small share of business at global banks. Asian investment banking units account for around 10 per cent of the groups' revenues.

But these days, every little counts.

As the US slouches into recession, commercial and consumer lending are weakening. Capital markets have slowed dramatically, cutting into underwriting and trading profits and forcing massive write-offs.

Growth globally is slowing, and there are few bright spots for banks.

Case in point: Citigroup, the largest US bank, which reported a US $5.11 billion loss last Friday.

Analyst Meredith Whitney at Oppenheimer wrote on Monday that she sees material declines in the profitability of all Citi's businesses. The bank has 'seriously constrained earnings power', which could force it to raise more capital and cut its dividend, Ms Whitney wrote.

Citigroup's Asia division contributed US$4.6 billion to the bank's profit last year, more than half of which came from investment banking and trading.

Merrill Lynch and UBS AG, with major operations in Asia, have also been hit hard by the credit crisis.

When US coughs...
Despite the credit crunch's global reach, Asian corporates have had little trouble borrowing money from local banks, albeit smaller loans than they'd get from Western giants.

A Reuters poll forecasts 10 per cent growth for China's economy this year, down from 11.4 per cent in 2007, dwarfing the low single-digit growth typically generated by large Western nations.

'Clearly, Asia is going to feel the effects (of the creditcrunch). But I do think the underlying fundamentals and the growth rates will give Asia a better chance to work its way through with less damage,' said JPMorgan Chase's Donahue.

Last year's red-hot China IPO market sent heaps of fees to global investment banks. In addition, soaring economic growth emboldened executives across Asia to borrow money for capital expenditure, which fuelled debt underwriting fees.

But many family-owned businesses that dominate Asia would rather pull deals than see their stakes valued at a discount.

On the flip side, local tycoons and voracious hedge funds are being more selective when signing cheques.

'There is tremendous pressure on everyone to find revenues wherever they can,' said a Hong Kong-based senior investment banker at a top Wall Street firm, who did not want to be named. -- REUTERS