Merrill Lynch and Bank of America, its new owner, are preparing to cut about 1,900 staff in London — one of the biggest single staff reductions in the history of the City.

Staff at Merrill have been told that management is looking to cut 30 per cent of the combined workforce in the capital. Some were asked to reapply for their jobs last week.

Cuts have already begun in some departments, with job losses in the commodities trading department in the past few days, but the major reductions are still to come, with most of the cuts due to be completed by March.

Sentiment in the dealing rooms has been at rock-bottom since December when BoA said that it was looking to shed 30,000-35,000 people worldwide, between 11 per cent and 13 per cent of the combined workforce, over three years.

It is aiming to achieve annual cost savings of $7 billion (£4.8 billion).

However, investment banking is expected to bear a disproportionate and early share of the job losses as Merrill digs in for a lean period of poor trading volumes and low bid activity and pulls back from some areas such as proprietary trading and structured credit.

Merrill employs 4,500 in London, mainly in its St Paul's European headquarters building, while BoA has about 1,700 in the capital. Merrill agreed to an all-share rescue by BoA in September just days after the failure of Lehman Brothers.

The deal was completed on January 1.

One Merrill trader in London said: “Everyone's got the hump. Everyone's really down. Last week we had to be interviewed for our own jobs.”

BoA declined to amplify on its December statement yesterday. One senior BoA banker conceded that morale might have sunk but said staff at Merrill needed to be realistic.

“I don't mean to be brutal but some people are missing the plot. Merrill could have gone the way of Lehman Brothers,” the banker said.

Jonathan Moulds has recently been confirmed as president of BoA for Europe, the Middle East and Africa and will be responsible for uniting the two organisations in London. Merger teams have been appointed.

Staff cuts of this magnitude would represent one of the largest reductions by a single City employer. A net 2,500 people in London lost their jobs when Lehman collapsed.

Thousands are expected to go in London as Citigroup reduces worldwide headcount by 52,000. Commerzbank is shedding 1,200, Nomura 1,000, while Credit Suisse ousted 650 and Goldman Sachs an estimated 600.

Deep cuts are expected at Royal Bank of Scotland's global markets division, which employs 25,000 worldwide and is heading for a drastic retreat from complex securities and higher-risk deals now that the bank is 58 per cent owned by the British Government.

About 28,000 City jobs were shed last year, according to the Centre for Economic and Business Research, which forecasts that 34,000 more will go this year, leaving numbers remaining in wholesale financial services at 291,000.

Retail bankers are also braced for job losses as a result of the imminent takeover of HBOS by Lloyds TSB. One former main-board director of a rival high street bank said that the combination would eventually lead to 30,000 job losses.

Lloyds has declined to put a figure on possible job losses, though it has pencilled in annual savings of £1.5 billion, an impossible target without sharp cuts to the wages bill.

Ken Lewis, the BoA chief, described the Merrill deal as “major grand slam home run” just months after suggesting that he wanted nothing to do with investment banking.

BoA has recent experience of mergers, having bought and integrated LaSalle Bank in Chigago, and Countrywide, the troubled US mortgage lender.

BoA and Merrill have together received about $25 billion from the Tarp, the US fund created to bail out troubled banks.

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