Bankers cheer return of big bonuses

THE good times are set to roll once more for City bankers as new figures show their bonuses will rise by up to 20% this year.

After more than two years of cuts, investment bankers across the Square Mile can now look forward to loosening their belts this Christmas.

Many bankers and equity analysts had failed to take home bonuses last year, but now anticipate performance rises of between 10% and 20%, according to executive search firm Armstrong International.

The return of bonuses follows three years of falling share prices and a fall in the number of mergers, with thousands of job losses among investment bankers.

The bonuses have been fed by higher earnings at the largest banks, with Bank of America and Merrill Lynch last month reporting a rise in profits in a sign of US economic recovery.

However, the bonuses of the top executives have fallen, with only a small number of 'star' equity analysts likely to receive more than £1m in end-of-year lump sums. In another sign that money is once again flowing in the City, Lehman Brothers recently offered investment bankers a £6,000 payment for referring potential recruits to the firm.

Merrill Lynch, the world's largest broker, has suffered during the last three years, shedding 24,000 jobs - a third of its staff - but the Financial Times says a 'wave of optimism' is now sweeping its City headquarters.

Its chairman and chief executive Stan O'Neal said last month the bank had lifted its pay freeze after two years and in a memo to staff he said those earning less than £60,000 would receive merit-based salary increases at the end of the year.

He wrote: 'Implementing a traditional year-end merit increase cycle reflects both the company's improved financial performance and our confidence in Merrill Lynch's future.'

Aidan Kennedy, of Armstrong International, said bonuses helped managers attract and retain quality staff at a time when more jobs where becoming available. 'Management now need to motivate the engine room. Those who have had their salaries frozen for three years will be looked after,' he told the FT.

Firms that fear losing skilled executives to rivals can be expected to pay a vice-president a bonus of between £93,000 and £250,000, while associates should receive £62,000 to £125,000.

But one legendary aspect of City life shows no immediate sign of making a comeback. Entertainment budgets are expected to fall by an average 25% after being frozen for the past two years.