The cuts will be mainly in the back office and in Warburg's securities operations, which overlap with SBC's.
"SBC views Warburg as a badly run bank," one source said.
The possibility of a counterbid for Warburg and a full bid for its 75 per cent stake in Mercury Asset Management spurred both shares yesterday. Mercury shot up 34p to 878p and Warburg rose 13p to 827p.
The sale of Warburg's stake in Mercury is now seen as an integral part of the deal, and offers are already being considered. Among the front- runners are Sandy Weill's US Smith Barney retail brokerage and Merrill Lynch. NatWest and ABN Amro have both firmly denied that they are interested.
Rumours over the proposed deal continue to increase in volume as both SBC and Warburg remain silent on the progress of their sales talks. In Frankfurt financial markets were awash with rumours that Dresdner Bank, Germany's biggest bank after Deutsche, is now seriously interested in making a counter-bid for Warburg.
A spokesman for Dresdner said last night: "We are considering our options."
Dresdner had a link with Kleinwort Benson in the early 1980s and has consistently said it would like to increase its investment banking operation in London. Although no longer interested in Kleinwort, sources said Dresdner was keen to copy Deutsche Bank's successful Morgan Grenfell acquisition.
"Now that Warburg is definitely in play, the Germans are seriously running a ruler over it," one source said.
Sources close to the talks confirmed that, although there will have to be big job cuts, SBC is also promising big bonuses to key Warburg players in the corporate finance department to stem further defections.
Four top equities people defected to Deutsche this week, and more may go as SBC's plans to slim Warburg's securities arm become clearer. SBC's strategy is to combine its huge balance sheet with Warburg's corporate finance expertise and contacts. Warburg's European corporate finance side is three times the size of SBC's.