Bonuses in Europe to fall by 50%

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Bonuses at many of the top investment banks in Europe will fall by between 25% and 50% this year, according to a report by Armstrong International, the financial markets headhunting firm.

The report by Armstrong, which analysed the performance of seven big securities firms, said that four of the banks will manage to keep their compensation ratio (the cost of bonuses and salaries as a proportion of revenues) steady by slashing their bonuses.

These include Credit Suisse First Boston, Lehman Brothers, Merrill Lynch and Morgan Stanley. Deutsche Bank's compensation ratio is expected to rise by approximately 3% to 48% of revenue.

The report estimates that Merrill, where employees were offered voluntary redundancy at the end of last month, will be among the worst hit with bonus cuts of 25% to 50% forecast. In fixed-income 'there appears to be some consensus that the top 10-15% of performers will get paid up to 90% of last year's levels', according to the report.

Staff in Deutsche's equities business are expected to see bonuses fall by approximately 35% to 40%. Bonuses at CSFB are forecast to drop by at least 30% to 40%, while at Morgan Stanley cuts of 25% to 40% from last year are expected across all levels.

In equities, although bonuses are expected to be down this year by 30% to 40%, 'there is a strong feeling that calculations will be made on a bespoke basis' the report says.

At SSSB, investment banking bonuses are anticipated to be down by an average of 30% from last year and will be cut across all levels.

In fixed income bonus expectations are reasonably high and those individuals who have substantially exceeded budget are 'looking for between 8% and 10% of production.'

At JP Morgan Chase, a cut of roughly 30% is expected with the bank working hard to attack the cost base in some of the larger teams (notably FIG and telecoms) to ensure some bonus payouts to vital junior bankers. Chase maintained a higher stock to cash ratio for its total compensation packages with components often reaching 50%, while JP Morgan kept to lower figures around 30%. The merging of these systems leaves the bonus picture unclear.

Stock will also constitute a greater component of overall compensation at Merrill and at Deutsche. At Deutsche, senior management may be paid up to 60% of compensation in performance options rather than cash or stock.

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