The world's top investment banks are likely to take the razor to bonus payouts for staff for the first time in five years as a result of the unfolding global credit crunch, it emerged today.

The Options Group, a New York-based firm that has tracked pay and hiring trends for more than a decade, reckons that hardest hit will be employees who structure and sell mortgage-backed securities.

These have been at the centre of a confidence slump caused by soaring delinquency rates among US sub-prime mortgage borrowers.

One in three people working in those investments may lose their jobs unless business picks up by the end of the year, the Options Group estimates. Bonuses may slump as much as 40 per cent.

"There's a lot of pessimism out there,'' Gary Goldstein, chief executive officer of Whitney Group, a New York-based recruitment firm, told Bloomberg. "Looking at the world today as we see it and the impact the crunch is likely to have, it looks like bonus pools will decline," he said.

The Options Group told the news agency that bonuses would probably be trimmed by about 5 per cent compared with last year when the average payout for staff at a US securities firm was $220,650, up 20 per cent on the previous year.

Top Wall Street bankers, used to collecting bonus payouts comfortably above their annual salaries, are expected to be hit by the seizure in the credit markets halting leveraged buyout deals and threatening to hold up current and future bids.

For a corporate financier accustomed to a bonus of at least $1 million, that equates to a cut of a minimum of $50,000. A trader who might have hoped for a payout of as much as $5 million, could received $250,000 less this year if a 5 per cent cut is imposed across the board.

Hedge-fund investment managers, whose average payout climbed as much as 15 per cent last year, may see a drop of 5 per cent to 10 per cent in 2007, Bloomberg reports. Bonuses for employees in fixed-income units may fall as much as 10 per cent, compared with a 10 per cent gain last year, Options Group estimates.

But headhunters cautioned that it is too soon to know what will happen by the time banks start bonus discussions, typically in October. They also note that traders involved in equities, commodities and distressed debt are having a good year and are likely to reap bumper payouts.

"This is the quarter that is going to determine whether compensation is going to be lower or not,'' said Michael Karp, chief executive of the Options Group, which bases its estimates on interviews with senior industry executives and information gathered by the firm's network of consultants.

The US sub-prime-inspired crisis has sent equity and bond prices worldwide on a rollercoaster ride. The market for mortgage-backed securities has dried up, hurting those who trade the bonds or sell them to investors. Investment banks haven't been able to find buyers for leveraged-buyout loans. Prime brokers may see fees drop as some hedge funds close and others reduce borrowing.

Funds that have already shut or failed this year include two credit pools managed by Bear Stearns, UBS's Dillon Read Capital Management and Sowood Capital Management of Boston.

Big pay packages at hedge funds and leveraged buyout firms have driven compensation higher at Wall Street firms, as they seek to compete for the best traders and bankers.

Last year, the five biggest US securities firms paid about $36.5 billion in bonuses, up 32 per cent from a year earlier as the number of employees rose 7 per cent, Bloomberg reported.

Since last falling in 2002, total bonus payouts at the five firms rose 6 per cent in 2003, 19 per cent in 2004, and 18 per cent in 2005. Securities firms typically set aside about half of their revenue to pay compensation and benefits. Of that, about 60 per cent is paid in bonuses at year end.

"The sentiment right now is pretty harsh because in the past two weeks it wasn't hard to see people who lost a lot of money,'' John, 29, an equity-options trader at a Wall Street bank told Bloomberg. "But on bonuses, it's too early to say. It was a good market before this, and I don't think people think yet that this will jeopardise pay."

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