Jan. 11 (Bloomberg) -- The decline in leveraged buyouts is slashing fees for investment banks, including Deutsche Bank AG and JPMorgan Chase & Co., by about 50 percent.

Buyout firms paid $5.4 billion to securities firms in the U.S. and Europe in the second half of 2007, 38 percent less than the first six months, data compiled by New York-based research firm Freeman & Co. and Thomson Financial show. The drop was steepest in Europe, where fees fell 54 percent.

Investor demand for loans the LBO firms rely on to fund their deals dried up in August as the collapse of U.S. subprime mortgages caused financing costs to more than double. Banks are reducing a $350 billion backlog of debt they agreed to provide, making them less willing to back new buyouts.

``Wall Street is going to take a hit,'' said Tom Lamb, London-based co-head of Barclays Plc's private-equity unit. ``The larger, billion-pound plus deals are going to be pretty thin on the ground because there's no sign of the banks getting a renewed appetite for those deals.''

Deutsche Bank's revenue from buyout firms in Europe dropped by more than 50 percent to $129 million, while JPMorgan's fees from LBOs fell by a third to $328 million in the U.S. and by 60 percent to $95 million in Europe, Freeman's calculations show.

Alexandra Buxton, a London-based spokeswoman at JPMorgan, the third-biggest U.S. bank by assets, declined to comment. Oonagh Baerveldt, a spokeswoman for Frankfurt-based Deutsche Bank, Germany's largest bank, also declined to comment.

Goldman's Payday

Goldman Sachs Group Inc., the biggest U.S. securities firm by market value, earned the most from advising and financing LBOs in the U.S. and Europe, and arranging share sales for private-equity firms. The New York-based firm reaped $574 million in the second half, beating the $423 million earned by second-ranked JPMorgan, Freeman's calculations show.

Goldman's buyout division also paid out $307 million in fees, second only to New York-based Kohlberg Kravis Roberts & Co., which paid $599 million in fees to banks in the second half.

In all, fees for mergers advice in the U.S. and Europe dropped by 15 percent to $2.26 billion in the second half, the data show.

Freeman's calculations are based on deals closed in the period, and include buyouts of U.S. wireless carrier Alltel Corp., Equity Office Properties Trust, and Texas power producer TXU Corp., which were announced before the second half of the year. The three takeovers generated almost $500 million of fees between them.

`No Signs'

The pace of announced buyouts slumped in the second half, with private-equity firms announcing $202 billion of deals worldwide, about 66 percent less than in the record first six months, according to data compiled by Bloomberg. The firms have announced $3.5 billion of deals in 2008, Bloomberg data show.

Financing for leveraged buyouts dried up in the second half, cutting the fees banks earn for arranging debt to fund takeovers. LBO firms use a combination of debt secured on the companies they buy and money from their own funds, their private equity, to pay for takeovers. Executives say credit markets have yet to recover.

``Financing markets have not improved so far this year and we see no signs of loosening,'' Blackstone Group LP President Hamilton James told investors on a conference call yesterday. The New York-based firm manages the world's largest LBO fund. ``Big public to private transactions will be challenging for us until the credit markets reopen. It looks as if it will be at least a couple of quarters before that happens.''

Fees for arranging syndicated loans, the most lucrative business for banks, slumped to $867 million in Europe in the second half from $2.1 billion in the first half. KKR, run by Henry Kravis and George Roberts, Carlyle Group in Washington and London-based Permira Advisers LLP, Europe's biggest buyout firm, paid no fees for bond sales in Europe in the second half, the data show.

In the U.S., LBO firms paid $1.05 billion in fees for arranging loans in the second half, a drop of 27 percent from the first six months of the year.

To contact the reporter on this story: Edward Evans in London at at eevans3@bloomberg.net

Last Updated: January 11, 2008 12:13 EST