March 3 (Bloomberg) -- When credit markets seized up in 2007, wracked by the plunging value of securities tainted by subprime mortgages, bankers found consolation in equity sales.

Fees from initial public offerings rose 20 percent in the second half compared with a year earlier, while income from mergers and acquisitions and bond sales dwindled. New issues in Brazil, China and Russia helped bankers notch a record year of stock underwriting.

Led by UBS AG and JPMorgan Chase & Co., banks took in $25.7 billion in fees last year, up 19 percent from 2006, for bringing $807 billion in new shares to market. The firms are unlikely to match that record this year.

Bankers expect a slowdown in U.S. IPOs, which are the most lucrative part of the market because of the higher fees they generate. The cut bankers got on U.S. IPOs last year averaged 6 percent, according to data compiled by Bloomberg. European initial share offerings generated an average fee of 2 percent.

The $4.8 billion stock offering by Blackstone Group LP, the private equity firm founded by Stephen Schwarzman and Peter Peterson, was the second-largest U.S. IPO in five years and the seventh-biggest share sale worldwide in 2007. Firms such as Kohlberg Kravis Roberts & Co. that hoped to follow in Blackstone's footsteps have so far failed to find an opportunity to complete an IPO.

In January, plunging stock markets forced 37 companies worldwide to withdraw or postpone initial share sales, the most in at least a decade.

``The question is, `When is the market going to be good enough to really bring IPOs out again?''' says David Topper, 50, co-head of equity capital markets for the Americas at JPMorgan Chase.

UBS Climbs

UBS, Europe's biggest bank by assets, moved to first place from fifth in the Bloomberg 20 equities ranking, helped by its dominant share of the fast-growing Asian market. Zurich-based UBS pulled in $2.45 billion in equities fees, $735 million of that from Asia.

JPMorgan Chase climbed to second, with $2.2 billion in fees, from seventh place last year, followed closely by Citigroup Inc., with $2.16 billion in fees, and Morgan Stanley, which pulled in $2.11 billion. All three increased the number of share offerings they underwrote on overseas stock exchanges.

``Instead of having to seek U.S. listings to capture the broadest group of investors and the highest valuations, emerging-market issuers have been increasingly able to list in their home markets,'' says Ted Pick, co-head of equity capital markets at Morgan Stanley. That's a boon for banks that have worldwide reach, he says.

VTB Group

Deutsche Bank AG, Citigroup and Goldman Sachs Group Inc. helped VTB Group, Russia's second-largest bank, sell $8 billion of shares in last year's biggest equity offering. In May, the bank pushed back the deadline for applications to buy shares in the IPO after domestic demand exceeded expectations.

The MSCI Emerging Markets Index, which tracks 927 stocks traded in China, India and other developing countries, more than doubled from the beginning of 2005 through the end of January.

Thomas Fox, joint global head of equity capital markets at UBS, says the pipeline of equity sales in Brazil, Russia, India and China, the so-called BRIC countries, is still overflowing. ``They all enjoy meaningful backlogs of transactions that will occur in 2008,'' he says.

The fate of IPO underwriting in Europe and the U.S. in 2008 depends on whether the sell-off in stocks that began the year continues -- and whether the U.S. falls into a recession, as some economists predict.

The S&P 500 has fallen 9.4 percent this year through the end of last week. From its peak in October, the U.S. benchmark is down about 15 percent. In Europe, the year-to-date drop in the Dow Jones Stoxx 600 Index was 13 percent through last week.

``If the market overall is not doing well, it becomes really hard to do IPOs,'' says Reena Aggarwal, a finance professor at Georgetown University in Washington.

Convertibles

With IPOs plunging, bankers predict there will be a rise in sales of convertible securities, which combine equity features with dividends or interest payments. They're a traditional bear- market refuge.

``It's a classic situation for converts to come into play,'' says Chris Kelly, head of the capital markets practice at law firm Jones Day in New York.

``Convertible issues will make up a bigger percentage of new issues because the other stuff isn't getting out the door,'' says JPMorgan Chase's Topper. That's good news for his firm, which underwrote 14 percent of convertible securities issued in 2007, a bigger share than any of its rivals.

To contact the reporters on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: March 2, 2008 19:05 EST