City bonuses bounce back by fifty per cent

The bonus payout by the City for 2009 – to be paid at the start of 2010 – is forecast to rise to £6.0 billion, an increase of 50% compared with payments made earlier this year, according to data from the Centre for Economics and Business Research (CEBR).†

However, this amount is still significantly lower than the £10.2 billion paid out for 2007, owing to a poor start to the year and far fewer people now working in the City.

CEBR has upwardly revised its April 2009 forecast for bonus payments in 2010 from £4.1 billion. This is principally due to better than expected second and third quarter profits for many leading financial institutions.

Benjamin Williamson, CEBR economist and co‐author of the research, said: “Bonuses are beginning to bounce back but will not reach the levels of 2007 anytime soon. Profits of major financial sector institutions have jumped sharply; therefore bonuses, which to some extent are a profit sharing scheme have also risen.”

CEBR recently estimated that the credit crunch has cut the number of City jobs by 49,000, or 14%, from its 2007 peak. Furthermore, the number of wholesale financial sector jobs in London is unlikely to return to peak levels for at least a decade. Cash bonuses are therefore likely to remain below peak levels for at least five years.

Douglas McWilliams, CEO at CEBR, said: “Banks’ profits have risen very sharply this year, reflecting a lack of competition in the market. It is not surprising that the increase in bonuses has matched these higher levels of profitability. Any attempt to deal with bonuses is likely to be either unsuccessful or very damaging unless it addresses the issue of lack of competition which is at the heart of the sharp rise in profitability.”

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