Almost 3,000 people working in the City will bag bonuses of at least £1m each this bonus season, according to Brewin Dolphin Wealth Management. That amounts to 1 per cent of the City's workforce of around 300,000, ranging from investment bankers and fund managers to stockbrokers and private equity financiers.
City workers are looking forward to their best bonuses for four years as they reap their rewards from buoyant stock markets and an upsurge in mergers and acquisitions.
Thousands of bankers are receiving their bonuses this month while others get theirs in the New Year. The total bonus pool is set to increase by between 15 and 40 per cent from last year, Brewin Dolphin predicted. The total bonus pool will run to billions of pounds. In the last bonus season, financial payouts were £1bn higher than in the previous year, according to the Office for National Statistics, which does not publish a total figure.
The bumper payouts reflect the record profits notched up this year by most of the blue-chip financial firms. Top dealmakers can expect seven-figure bonuses based on their percentage take of the fees they earned for their banks. The fees made by the top investment banks on takeover deals rose by almost a third this year, according to figures published by Thomson Financial. Global merger and acquisition fees rose 27 per cent to $30.3bn (£17.5bn), from $24bn last year.
Deal makers and specialised derivatives traders are expected to get the biggest pay-outs this year, trumping their colleagues in fixed income who pocketed the lion's share of the bonus pool during the downturn in equity markets. Martin Smith, chief executive of Brewin Dolphin Wealth Management, said: "2005 has been a good year for the City... However, not everyone working in the Square Mile will receive much bigger bonuses than last year as there is a growing trend to focus more of the rewards on the star performers. This is often influenced by which areas they work in."
The Brewin Dolphin survey of customers also found that people working in private banking should also see hefty bonuses. Securities firms typically allocate almost 50 per cent of their revenue, after interest expenses, for compensation.
The top four securities businesses - Goldman Sachs, Morgan Stanley, JP Morgan and Citigroup - each did at least one takeover deal a day over the past 12 months and together made $6bn in M&A fees. Goldman led the pack, earning $1.94bn in fees this year compared with $1.38bn last year. Morgan Stanley saw its fee income rise to $1.54bn from $977m, winning it second place in the global M&A rankings. It swapped places with JP Morgan, which earned $1.28bn against $1.04bn. Citigroup earned $1.2bn in fees, up from $979m.
Separately, it emerged yesterday that hedge funds have been accused of manipulating their December returns to give their managers big payouts. Narayan Naik, director of the London Business School's Hedge Fund Centre, says in a paper entitled Why is Santa so kind to Hedge Funds? that the December bonanza could be explained by massaging their returns to increase fees. The study found that in December, hedge funds earn more than twice the average monthly return seen during the first 11 months.