CITY bankers are set for a bonus bonanza this year as pay packets soar to levels not seen since the mergers-and-acquisitions boom of 2000.

Investment banks are expected to increase the bonus pool by between 20% and 30% from last year, with best- performing bankers likely to see their payout double.

“The City is back to boom-time levels of bonuses,” said Curly Moloney of the City headhunter Moloney Search.

The wave of cash has already reached Boodles, the City jeweller, which last week sold a single diamond ring set in platinum for £300,000 — the City branch’s highest-ever sale.

This year the banks are said to be more discerning about the rewards. Bankers in mergers and acquisitions (M&A), equity capital markets and leveraged finance are likely to be the main beneficiaries, while those working in poorer-performing divisions could miss out.

“Investment banking is the hot area,” said Dee Symons at Russell Reynolds, a headhunter. “But differentation is the name of the game. The top 25% (of City workers) will be ecstatic. The middle 50% will be pleased. But the bottom 25% will find their pay has gone down.”

After several lean years, employers are looking to reward and retain their key players.

M&A activity has built up steadily over the past 18 months. Two weeks ago four big takeovers involving British companies with a combined stock-market value of £23 billion were announced.

Bankers on Wall Street are also in line for a record bonus season with $17.5 billion (£10 billion) set to be handed out in cash rewards, according to pay experts. It will be the third year in a row that US-based bankers have seen their bonuses rise, with payouts now approaching levels last seen at the height of the dotcom boom in 2000.

Bear Stearns, Goldman Sachs, Lehman Brothers and Merrill Lynch have all recently reported record third-quarter earnings as bond trading has surged. The banks have also advised on $942 billion of American mergers, according to data compiled by Bloomberg.

Securities Industry Association chief economist Frank Fernandez told a bankers’ conference last week that the industry will earn at least $24 billion before taxes in 2005. Wall Street bonuses should rise by 5% to 10% for a third successive year, according to a survey by compensation consultant Johnson Associates.

This year a managing director in an investment-banking firm can expect to take home $2m or more after bonuses, said Alan Johnson, founder of New York-based Johnson Associates. Of that package, some $250,000 could be base salary and the rest bonus in cash and equities.

“For some people pay is clearly going to be up anywhere up to 25% this year.” said Johnson.

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