Charities warn of huge cuts as banks slash gift-giving

London charities have warned they face devastating cutbacks in support from the City amid the world financial turmoil.

Once-wealthy American investment banks were among the most generous of givers but they are now reining back their charitable programmes after being caught at the centre of the crisis.

As the financial institutions lay off thousands of staff, charity experts say it would be hard for them to justify philanthropic giving.

A poll of charity chief executives by the Charities Aid Foundation found 88 per cent expected income to drop significantly with more than half worried businesses would redirect funding during the slowdown.

The collapsed Lehman Brothers provided more than 2,000 volunteers to deprived communities surrounding the Square Mile and Canary Wharf. Unlike many corporate donors, the bank was admired for avoiding "elitist" sponsorship of opera, ballet and art.

But after its failure on 15 September, the volunteers are lost and about £2 million previously pledged to various charities by the 158-year-old bank remains in limbo.

Mike Tyler, director of Tower Hamlets Education Business Partnership, said Lehman's departure would leave a huge gap. "To use a boxing metaphor, pound for pound Lehman Brothers punched above their weight in the community - not just in terms of money but with volunteers as well," he said.

"It had a very positive profile in terms of community engagement, particularly in east London and Tower Hamlets. Their going will leave a hole and it's not just financial."

Lehman bankers had visited Oaklands Secondary School in Bethnal Green to help pupils with financial literacy, reading and numeracy. The bank's collapse also spelled the end of pupils' weekend access to its Canary Wharf offices for mock job interviews and work experience.

The decade-long partnership won Lehman Brothers a nomination for the Lord Mayor's award for corporate social responsibility programmes this year. Another ambitious scheme by the education business partnership, aimed at giving every 14- to 19-year-old in Tower Hamlets the skills to navigate the job market, faces an uncertain future.

Lehman bankrolled last year's successful pilot and was expected to donate another £140,000 but was yet to commit the money when it went down. Mr Tyler does not know if his other sponsors, which include Merrill Lynch, itself subject to a takeover by Bank of America, can bridge the gap.

The Almeida Theatre in Islington had £75,000 still due out of a £230,000 grant from Lehman for its community and education arm, which works with six schools in the borough. Executive director Neil Constable remained optimistic but warned the outlook would be bleak if the money was not paid.

"We would have to scale back the amount of activities because it's the largest grant we receive for Almeida projects," he said.

A dozen Lehman staff played a vital role in one of the theatre's projects at Islington's The Bridge School for children with learning difficulties. Performance was used to help students-cope with the stress of changing campus. Jean Gross, director of Every Child A Chance, which runs literacy and numeracy programmes, said its government-backed catch-up maths project was still due £800,000.

Lehman's donation of £1 million over five years was 20 per cent of the project's funding but Ms Gross said other backers, including KPMG and Deutsche Bank, could be approached to meet the shortfall if necessary.

Most of the failed bank's giving was carried out through Lehman Brothers Foundation Europe. While it is a separate entity, Lehman's head of philanthropy Andrea Sullivan is trying to honour the foundation's commitments, said to be worth in excess of £2 million. She said: "We are doing everything we can."

While the long list of charities and community groups may yet get the money they were promised, it is likely they will have to look elsewhere in the long term.

Mallen Barker, director of Business Respect - which aims to promote corporate social responsibility - said: "Banks are now finding themselves in alien territory. Charities rely hugely on corporate donations but these donations are related to company successes. It would be difficult for a bank to justify shutting branches while simultaneously giving away money."