Bonuses at London’s banks may slump by almost 60 per cent in 2008, with no return to the record payouts of the past four years likely for the “foreseeable future”, the Centre for Economics and Business Research said.
Bonuses in the City of London, the UK’s main financial district, may plummet to £3.6 billion ($6.2 billion) this year, from £8.5 billion in 2007, the CEBR said in a report today. Cash-strapped firms may be reluctant to or legally barred from paying bonuses after the UK government led a £50 billion bailout of the banking industry yesterday, the CEBR added.
Prime Minister Gordon Brown is threatening to clamp down on bankers’ bonuses that some lawmakers say helped cause the credit crunch. The Financial Services Authority plans to draft a code covering executive pay at Britain's banks. UK bankers shared in more than £31 billion of bonuses over the past four years, fuelling demand for London real estate, cars and luxury goods.
“We're witnessing a fundamental change in remuneration structures in the city,” Richard Snook, the CEBR's senior economist, said in an interview. “The million-pound plus bonuses are going to be few and far between.”
Bonuses will also be reduced as the number of workers cut by city firms increases, the report said. Financial companies have eliminated more than 133,000 jobs worldwide since the beginning of the credit crisis last year, data compiled by Bloomberg show.
Gary Burnison, chief executive officer of executive search firm Korn/Ferry International, said he expects as many as 200,000 jobs will go in the industry worldwide.
More From This Section
US Bonuses: “Our clients are telling us that in Europe it may not be as bad for bonuses compared to New York and the US,” Burnison said in an interview today. Bonuses may decline by about 40 per cent in London compared with as much as 60 per cent in the US, he added.
With “the FSA breathing down employers' necks and a labour market with plenty of people available, it is unlikely that we will see bonuses paid on the scale of the past four years in the foreseeable future,” Snook said.
Zurich-based UBS AG said last week it will cut another 2000 jobs in its investment banking unit or about 10 per cent of the total, to reduce costs.
Job losses in the Square Mile, London's main financial district, may total 40,000 this year, according to estimates by analysts at JPMorgan Chase & Co.
Deutsche Bank: Financial companies are setting aside less money for bonuses as funding costs increase and governments around the world step in to rescue banks. Deutsche Bank AG, Germany's largest bank, posted a 31 per cent drop in personnel costs in the second quarter as it apportioned less funds for bonus payments.
New York-based Lehman Brothers Holdings Inc filed the biggest bankruptcy case in history on September 15. About 750 UK Lehman fixed income employees lost their jobs last week. They are guaranteed £800 under English law, though must line up with other creditors if they hope to get any of their discretionary bonus, lawyers said at the time.
London bonuses may decline further to £2.8 billion next year, CEBR forecast, adding that in three years time they could amount to £4.6 billion, about the half 2006's record £8.8 billion payout.
The CEBR, set up by Douglas McWilliams, a former economic adviser to the Confederation of British Industry, provides analysis on markets, financial companies and the government.