(SINGAPORE) They will never be called poor, but investment bankers have seen their fees decline as the economic climate worsens. Their bread-and-butter activities - like initial public offerings and bond issues - have taken a hit and dragged down their earnings compared to last year.

In Asia-Pacific ex-Japan, investment banking fees came in at US$5.74 billion year to date. This is a 19 per cent drop from the same period last year, according to data from Thomson Reuters and Freeman & Co.

So far this year, only 6,939 deals have been completed or announced. This pales in comparison with the 7,673 deals for the same period last year.

Fees have fared even worse, with only mergers and acquisitions keeping the flag flying. An estimated US$3.85 billion in earnings has come from M&A deals this year to date. That's slightly more than the takings of US$3.6 billion in the same period last year.

Elsewhere the picture is gloomy - with the bleakest news coming from activities in the equity capital markets (ECM) that include IPOs and private placements. Banks have earned only US$1.31 billion from ECM this year, compared to US$2.78 billion in the same period last year - which was more than twice as much.

The debt capital markets (DCM), which include trades in instruments such as bonds and loans, have not provided much joy either. Banks have so far earned only US$313.9 million from them - compared to US$469.9 million for the same period a year ago.

So what's gone wrong? 'The decline in primary capital markets volumes due to deterioration in equity markets has been a key reason,' said Parvati Banati, UBS's joint head of investment banking for Singapore and Malaysia.

Rohit Sipahimalani, managing director at Morgan Stanley Asia agreed. 'It has been difficult for companies to access the capital markets,' he said. 'Fewer companies will be able to do an initial public offering (IPO) this year than last year.' He pointed out that the cost of borrowing has gone up and access to bond markets have become more difficult, so debt financing activity has also slowed down.

Last year, when investment banks raked in an estimated high of US$13.8 billion, with 14,650 deals in all, is now a distant memory.

Reflecting the appetite of a resource-hungry global economy, only companies in the materials sector (which includes metals, mining and forestry) and the energy sector, registered a growth in activity and correspondingly, income earned by banks. All other sectors such as telecommunications, financials, real estate, healthcare, retail and technology registered a plunge in investment banking fees.

Geographically, all sub- regions in the Asia-Pacific experienced a downturn in investment banking fees, with Central Asia experiencing the mildest decline of 3.3 per cent, while South- east Asia registered a drop of 5.3 per cent in fees for banks.

The top earner in Asia, ex-Japan was UBS, with an estimated US$242.6 million in revenues, though it experienced a 55 per cent drop from its fees earned in the same period last year.

M&A activity has been the sole saving grace, with 67 per cent of investment banks' total fees in the Asia-Pacific region coming from this segment.

'In general, capital markets have slowed, but M&A has held up quite well,' said Morgan Stanley's Mr Sipahimalani. 'In fact Asia- Pacific M&A volumes so far this year are higher than what we saw in 2007.'

M&A in Asia is being driven by strategic moves, he said. 'Companies still have strong balance sheets and they're looking to grow. We should also see continued activity by private equity since banks in Asia are still willing to finance acquisitions, unlike in the West.' He cited Kohlberg Kravis Roberts' proposed buyout of Unisteel, as an example, where the bank advised KKR and also helped finance them.

The outlook for investment banking will be patchy, according to bankers, with M&A activity continuing to be strong, but capital markets flagging.

'The gap in the capital market activity is not likely to be plugged this year,' Mr Sipahimalani pointed out. 'As for IPO, volumes are not likely to pick up meaningfully for the next 2 quarters. After that, we may be able to see some improvement, depending on the economic outlook.'

Because of the capital markets, investment banking fees are likely to be less than last year, he said. But if one looks at M&A only, then this area might even be better than last year, he added.

One investment banker who declined to be named said that the overall fees pool for the industry will be at least 20-30 per cent lower than last year.

UBS' Ms Banati said, 'The state of the equity markets will have a bearing on the outlook for the year but M&A business is robust and corporate and sponsor activity is still strong.'