They can't bank on mega-pay packets anymore

THOUSANDS of jobs have disappeared from the investment banking world this year and thousands more are expected to go in the coming months. Savage as this appears, about 150,000 people will still be employed in this privileged pocket of industry once the cull is over.

Many of them are currently spending time on what are known in the trade as 360-degree evaluations, where individuals provide written assessments of those working above, below and alongside them. The evaluations are used by managers to decide such matters as who will stay, who will go and how much they will all be paid.

This time last year, bankers were living high on the hog. Business had tailed off slightly but not enough to damage a splendid year. Almost everyone was looking forward to generous bonuses. Today, the picture is very different. Business is hard to come by and the main topic of conversation is job insecurity and bonus cuts. Bankers will be less well remunerated than they were in 2000 but many will still be earning hundreds of thousands of pounds, making them among the best-paid employees in Britain.

Even within the industry, there are those who believe the pay is no longer justified. In the 1980s, investment bankers regularly invented new deal structures - leveraged finance, mezzanine finance and other arcane products sprang from that period. These days, takeovers and mergers have become commoditised. Bankers still put in the hours but the spirit of innovation is barely apparent.

Investment houses have traditionally had to pay huge sums of money to financiers to prevent them moving elsewhere. They have wanted to keep professionals in place for the value they added to the business. The bloated cost structure that grew out of this attitude has resulted in corporate clients being charged millions and tens of millions for deals.

When business is scant, companies can force down fees. Bankers are resisting this but they have less ammunition when deal flow is thin and they are offering nothing new. Strategic thinkers inside banking houses expect to see a number of older, high-paid financiers forced out of their jobs in the current downturn, and replaced by cheaper youngsters. These men and women will then be promoted without getting the mega-pay packets that have become associated with the trade.

The process is expected to take three or four years. But the enormous inflation in bank pay that has been a feature of the City since Big Bang may now be coming to an end.

Rail confidence

REMEMBER the 45-day standstill agreement the Government handed to Railtrack's creditors when Transport Secretary Stephen Byers put the business into administration? It would have run out later this month but it has been quietly extended to the middle of December.

The move is a fresh indication of the Government's desire to keep creditors sweet. These lenders are split between bondholders, who are owed about £1.5bn, and banks, owed roughly the same again. Credit rating agency Standard & Poor's last week upgraded Railtrack bonds from CC to BB+. The new rating is still below investment grade, which means it is high-risk but less so than it was a month ago.

Bonds with a BB+ rating would normally trade at about 60% of their issue price, reflecting investors' concern about being repaid in full and on time. Railtrack bonds are trading at more than 90%. Some are even changing hands above the issue price.

It is said that markets never lie. These bond prices suggest that S&P can put Railtrack in whatever risk category it likes. Investors are confident Newtrack will be comfortably supported by Government. That implies some sort of official guarantee, however disguised Byers and Chancellor Gordon Brown feel the need to make it.