City Bonuses Big, Despite Credit Crunch
Top bankers are set to receive even larger multimillion pound bonuses than in previous years, despite the downturn in the global economy, say City figures.
Big players in investment banks will learn they have received payments of between £1m and £5m in the next few days as bonus fever grips the City. Exceptional individuals will receive as much as £10m.
Overall, City bonuses are expected to be 10 per cent or more lower than last year's record £8.6bn because of the credit crunch sparked by defaults on US home loans. But City recruitment companies say there will be a starker than usual divide this year between winners and losers.
Firms in London's Square Mile and Docklands are expected to pay more money in bonuses to the top players -- called rainmakers for their ability to dominate markets -- to prevent them defecting to rival institutions.
Yesterday, bankers at Lehman Brothers began discovering the size of their bonuses, a day after Goldman Sachs revealed a record global bonus pool of £9bn. Staff at the US investment bank Morgan Stanley will learn their payouts today, while employees of Citigroup, Merrill Lynch and Barclays Capital will have to wait until after Christmas.
"The top performers will still be getting a 20 to 30 per cent increase on last year, but the average person is likely to get a lot less," said Emma Halls, a director of the headhunting firm Finance Professionals.
Armstrong International, a recruitment firm that conducts an annual bonus survey, said that although fixed income bankers might lose out because of the sub-prime crisis, others would thrive, such as those in mergers and acquisitions.
One partner, Matthew Osborne, predicted there would be "huge differentiation internally". He said: "I think the banks will try and pay high earners as well as they can.
"If you've got a team of 10 you will probably pay the top two the best you can and hope you can find some money for the next two or three, and probably won't mind if the others leave because you won't have to pay their salary next year."
Individual payments are not disclosed and speculation about the bonus round dominates City trading rooms, pubs and restaurants between mid-November and February, by which time almost all of the cheques have been cashed.
The £50,000 to £100,000 salaries of many investment bankers are dwarfed by their bonuses, which are often invested in housing and spent on sports cars and other luxury goods, bolstering the economy of the South-east.
Such huge payouts often astonish people on average earnings and government ministers such as Harriet Harman have expressed disgust at the "excessive" remuneration. During his campaign for Labour's deputy leadership, Peter Hain, the Work and Pensions Secretary, suggested that City firms donate two thirds of their bonuses to charity.
Many City workers will receive less than in previous years. The chairman of the Swiss investment bank UBS, Marcel Ospel, announced this week that he would not be taking any bonus after writing off almost £5bn of sub-prime lending, propelling the global total to £25bn. The ensuing credit crunch has forced the Bank of England and four other central banks -- the US Federal Reserve, the European Central Bank, the Bank of Canada and the Swiss National Bank -- to pump £50bn into money markets to avert recession.
However some banks such as Goldman Sachs have limited their exposure to the loans and assembled multi-billion pound takeovers in a buoyant first half of 2007.
Goldman's senior European mergers and acquisitions expert Simon Dingeman is thought to have pocketed £10m in cash and shares this week, while dozens of leading financiers at the bank are thought to have received £5m plus payouts.
Banking on big money
Known as "the goldmine", the US bank rewards its high-achievers well. A global bonus pot of £9bn averages £300,000 per worker. But the top dealmakers will receive between £500,000 and £10m. Mergers boss Simon Dingemans is thought to have snaffled £10m.
London workers began discovering their payouts yesterday. The US bank will pay 49 per cent of income back to employees, meaning this year's bonuses are likely to be up 10 per cent. US chief executive Richard Fuld has received shares worth £20m.
Bob Diamond, the boss of the investment arm of the high street bank, picked up an estimated £15m in salary and bonus last year. He will have to wait until January to learn his remuneration this year
Top "rainmakers" will still be paid bonuses, the Swiss giant confirmed this week, despite a sub-prime loss of £5bn.
The German bank is rumoured to have placed a £350,000 cap on payouts this year, after shedding 200 jobs in its credit team.