U.K. Financial Bonuses May Soar 50 Percent in 2009, CEBR Says

By Ambereen Choudhury

Oct. 21 (Bloomberg) -- Bonuses for financial services employees may rise by 50 percent to 6 billion pounds ($9.9 billion) this year as profit at U.K. banks, brokerages and hedge funds rebounds, according to a Centre for Economics & Business Research Ltd. report.

U.K. finance workers received about 4 billion pounds for 2008, according to CEBR findings released in London today. While the figures show a year-on-year rise, the report also estimates that 2009 bonuses will be 41 percent below 2007’s record figure of 10.24 billion pounds. Even in 2012, bonuses will still be 26 percent lower than in 2007, the report forecast.

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

The British government has tried to assuage voter anger over bankers’ pay ahead of an election which has to be held within the next eight months. It backed Group of 20 initiatives to curb bonuses agreed last month and new rules on pay being implemented by the Financial Services Authority.

“These bonuses are coming from the fact that banks are earning money from substantial government borrowing and are able to earn bigger profits because there is less competition,” Vince Cable, financial spokesman for the opposition Liberal Democrats said in e-mailed comments. “What is particularly galling is that all their activities are in turn underwritten by the taxpayer.”

‘Yachts and Villas’

It is “monstrous that good businesses are going to the wall for lack of credit, while bankers are using their taxpayer-funded bonuses to pile back into the yachts and the villas,” London’s Conservative Mayor Boris Johnson wrote on Oct. 19. Chancellor of the Exchequer Alistair Darling attacked bankers’ “stupidity” at the ruling Labour party conference on Sept. 29. Bank employees took excessive risks in pursuit of bonuses, leaving their institutions “hours away” from closure, he said.

Royal Bank of Scotland Group Plc, Britain’s biggest government-controlled bank, is planning to pay some employees bonuses of as much as 5 million pounds each, the Sunday Times reported on Oct. 18.

Edinburgh-based RBS has been cutting jobs and reducing its presence or withdrawing from two thirds of the 54 countries in which it does business after posting the biggest loss in U.K. corporate history last year and receiving government funding.

‘Low-Hanging Fruit’

“Whilst 2009 has been a bumper year harvested from low- hanging fruit as a result of government-sponsored liquidity, 2010 is predicted to be better because of the global economic recovery,” Shaun Springer, chief executive officer of Square Mile Services Ltd., which advises London financial institutions on remuneration, said in an interview.

“However the issue of where to remunerate is becoming more important than how much to remunerate,” he said. “There is a lot of talk of expanding in the Middle and Far East at the expense of London because there are clearly fewer restrictions and politically driven agendas.”

The CEBR has said that the global financial crisis has seen the number of jobs in London’s financial services fall by 49,000 or 14 percent below its 2007 peak.

U.K. Financial Bonus Payouts
In billions of pounds
2001 3.9
2002 3.3
2003 4.9
2004 5.7
2005 7.1
2006 10.1
2007 10.2
2008 4.0
2009 6.0
2010 6.7
2011 7.1
2012 7.5

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net;

Last Updated: October 20, 2009 19:05 EDT