City bonuses predicted to be flat but stars to widen gap

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The Independent Online

City bonuses are likely to disappoint again this year, with a report predicting flat bonus pools along with a huge divide between star bankers and their colleagues.

City bonuses are likely to disappoint again this year, with a report predicting flat bonus pools along with a huge divide between star bankers and their colleagues.

While most investment bankers in Europe will see no increase in their bonuses from last year, or even lower numbers, the top performers can expect increases of up to 15 per cent, according to an annual report by Armstrong International, the financial services executive search firm.

It surveyed more than 70 businesses across the fixed income, equity, investment banking and private banking divisions of 11 investment banks: Barclays Capital, BNP Paribas, Citigroup, Credit Suisse First Boston, Deutsche Bank, JP Morgan, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley and Société Générale.

A banker at CSFB confirmed the report's findings, saying he expected bonuses to be flat overall. Aidan Kennedy, a partner of Armstrong, said: "Expectations definitely exceed actual numbers in several areas. There will be some disappointed faces, but what they will realise is that this year has been in similar fashion to last year."

Some of the top US investment banks such as Goldman Sachs, Lehman Brothers and Morgan Stanley, pay out their bonuses in December, while the remainder pay them in January or February. Several US banks want to bring their bonuses forward into the pre-Christmas period, "preferring to have everybody's mind focused on new business and the strategy in the new year", Mr Kennedy said.

Investment banking bonuses are likely to be flat this year compared with last year, as mergers and acquisitions activity has not picked up as expected. But banks will take from the bottom earners to give increases of up to 20 per cent to the top performers, Mr Kennedy said.

Bonuses in most areas, ranging from capital markets, credit derivatives, interest rate trading and investment banking to equity research and trading, are set to be broadly flat this year, the report said. Only senior bankers working in leveraged finance and equity derivatives, which have performed much better than last year, can expect to see their bonuses rising by up to 30 per cent. Barclays has hired heavily in equity derivatives and could be a serious threat to the more established competitors such as BNP Paribas, SocGen and JP Morgan. HSBC is likely to follow suit next year, the report said.

Last year, bankers working in fixed income pocketed higher bonuses, but since then credit derivatives trading has been hit by a combination of difficult market conditions, regulatory changes and growing competition, leading to declining margins. European banks such as Deutsche Bank, Barclays Capital and BNP Paribas have become rivals to the US banks, which have traditionally dominated in this area. In the wake of increased hiring, bonuses will be largely flat this year, but the highest-paid traders can still look forward to bonuses of more than $3m (£1.6m).

Base salaries in the City have not changed much over the past four years, with most banks paying similar salaries across different levels, Mr Kennedy said.