Credit crunch forces fat cats on diet

Fat cat city bosses are being forced to tighten their belts as the credit crunch bites their bonuses.

City bonuses for 2009 are to be slashed by 40 per cent according to new figures.

The bonus payout for 2008 – to be paid in 2009 – will drop to £5.1 billion.

Research by the Centre for Economics and Business Research (CEBR) reveals the total 2008 bonus payout prediction has fallen by £1.1 billion over the last six months as the full effects of the credit crunch are felt.

The authors of the report state the slashing of bonuses is down to "severe and persistent turbulence in credit markets" that has led to a crash in mergers and acquisitions – down by a half on a year ago.

They claim, while Brits on the high street are struggling to find good value mortgages and repossession levels soar, the pin-striped brigade of the square mile will feel the bite of the credit crunch in their pockets for some time to come.

City workers will be hit as their bosses start to take into account losses as well as gains when setting their bonuses.

"It is simple supply and demand. As the supply of money has dried up, interbank interest rates have risen and demand has contracted," said economist Jörg Radeke.

"The crash in deals means less work for bankers and bonuses following suit."

Dominic Walley, CEBR managing economist, added city bonus will not be rising any time soon.

"Don’t expect city bonuses to bounce back. There is a strong perception that bankers have been rewarded for getting it wrong. The credit crunch raises enormous questions about whether the City’s bonus culture has been encouraging excessive risk taking," he said.

"We expect bonus regimes to be scaled back over the coming years. Other London industries are also exposed to a world downturn and the property market is teetering. All of these factors suggest that London will feel less prosperous over the coming years than at any time since the early 1990s."

Last month Bank of England governor Mervyn King hit out the bonus culture in the city.

He told MPs the incentives are encouraged the City to take risks.

"Banks have come to realise in the recent crisis that they are paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks themselves, and I would like to think that would change," the Bank of England kingpin said.

City workers are also set to struggle as firms cut back on staff as they write-off losses.

Research by credit agency Experian claims 40,000 people will lose their jobs in the next two years – with 10,000 jobs going in the City of London and Canary Wharf alone.

Daniel Barnes