Credit crunch to weigh on industry bonuses

By Svea Herbst-Bayliss

BOSTON (Reuters) - Bonus season is going to be a lot gloomier on Wall Street this year as the credit crunch weighs on payouts, bankers said at the Reuters Finance Summit this week.

The bankers also worry that if the mortgage-related losses that have already dented the fixed income and derivatives business at several big banks should spread, a lot of professionals will be looking for new jobs early next year.

"Through June we were thinking this would be a blockbuster year, but now you'll see bonuses under pressure," said James Dunne, chief executive of Sandler O'Neil & Partners, an investment bank that focuses on the financial sector.

Banks like Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) recently said they suffered billions of dollars in losses from mortgage-related businesses, which forced their CEOs to resign.

Overall, U.S. bonuses are expected to be flat to down 15 percent this year, compensation experts at Johnson Associates said. In 2006, the group reported an average jump of 10 percent to 15 percent in incentive pay.

U.S. financial professionals, who often count on bonuses to make up a significant portion of their compensation, will suffer most, according to preliminary data from Options Group, which also sees bonuses declining here by 10 percent to 15 percent.

In Europe, the group expects bonuses to shrink by 5 percent to 10 percent while the bonus drop in Asia will be as much as 5 percent.

Banks have traditionally earmarked as much as 50 percent of revenue for compensation and benefits but this year some like Germany's Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) have already said they are putting aside a much smaller pool.  Continued...