Dollar dive dents City bonuses

THE sliding dollar has seriously dented the bonus hopes of thousands of City workers. Senior managers in the London arms of big US investment banks that dominate the Square Mile have spent the last week explaining to disheartened junior staff that as bonuses are calculated in dollars, promised rises of 25% to 30% have shrunk dramatically after translation into sterling.

One investment banking head in equities at a large US brokerage said: 'My London staff are suddenly working out they need a huge increase in bonus to see any real gain. The bonus pot is worked out by the Americans in America and in dollars.'

The dollar has plunged from a high of nearly 65p at the start of the year to just under 55p this week, a fall of 15%.

'The guys pulling the trigger in New York think they are giving more - but they are thinking in dollars. It is not scientific. Even though we may be earning more for the bank in sterling or euros over here in London, it all goes into a global pot and is then paid out in dollars relative to last year,' the banker added.

With the financial year-ends of the big US banks just past, these so called 'bulge bracket' firms are preparing to pay out billions of dollars in performance-related bonuses between now and early March.

This year the biggest Wall Street banks alone - including Merrill Lynch, Morgan Stanley, Goldman Sachs and JP Morgan Chase - are estimated to have earmarked $11bn (£6bn) for staff bonuses worldwide.

The recovery in equity markets and mergers and acquisitions has led employees to expect bonus increases averaging 20% to 30% across the City.

Interest rate traders and derivatives specialists who have had a bumper year are expecting more.

That contrasts with a disappointing bonus season last year, when one in five City employees received no bonus at all and those who did received 70% less than in 2001, according to research by Close Wealth Management.

However, the dollar's decline will give a relative fillip to workers in Continental and British-owned banks, who are traditionally not quite so generously rewarded.

One senior banker warned that the usual boost to the London housing market from thousands of junior bankers buying their first homes might be more subdued than expected.