FEW barometers measure this year’s City bonuses as well as Palace Gardens Terrace, the smart street in Kensington, west London, where residents say they have been deluged with offers from bankers keen to buy them out.

In recent months, some have given in and moved house while others are in negotiations. The houses are worth as much as £4m each.

One resident said: “Almost every month a new banker moves into the street. That one is Morgan Stanley, that’s Goldman Sachs, the next is Merrills. And I think I can tell the size of the bonus by the size of the Christmas wreath on the door.”

The bankers stand out from the other wealthy residents for another reason: their age. “Some are so young. I always thought the area was young anyway — most people are in their late thirties or early forties. But some of these new ones are in their late twenties. They show up with their flash cars and then set about doing the house up. Then another moves in. It’s amazing to watch.”

Nearby, celebrity jeweller Solange Azagury Partridge said she had seen “more than our fair share of City boys this Christmas”. The price of her ruby and diamond-studded rings and necklaces ranges from thousands to hundreds of thousands.

Up to 1,000 City workers are expected to earn a bonus of more than £1m this year. And even further down the ranks, bumper bonuses are being handed out. City headhunter Maloney Search said: “We are seeing that as many as 10% of bankers just below partner level are getting £1m bonuses for the first time. This is a significant increase from previous years.”

A mergers-and-acquisitions associate banker with just three years’ experience can expect a base salary of £60,000 with a bonus of up to 400% of that — or £300,000. Senior proprietary traders will take home a salary of £100,000 and expect a bonus of more than 10 times that.

The bonus bonanza has been fuelled by a 39% rise in the value of mergers and acquisitions this year and a 9% rise in the number of deals.

Much of the money comes from banking fees for deals, including Pernod’s £7.4 billion takeover of Allied Domecq and Saint-Gobain’s £3.9 billion takeover of BPB, the plasterboard maker.

But it is not just the mergers- and-acquisitions bankers who are raking in the money. The value and volume of debt issues have also risen by 14% and 5% respectively, according to Dealogic, the data provider.

The strength of the markets has meant that demand has outstripped the supply of top-tier players, and employers are under pressure to pay up in order to retain senior staff.

In the short term there is little sign of that pressure easing off. A study by Manpower, the recruitment agency, found a third of financial-services employers expected to increase recruitment in the next three months against only 1% who expected to axe staff.

Average salaries in the Canary Wharf area of London, now home to many leading financial institutions, soared by 21.5% to more than £100,000 in the 12 months to April, according to the Office for National Statistics.

But it wasn’t all good news. As investment bankers celebrated their bonuses at Lehman Brothers, there was stunned silence on the bank’s equity trading floor just a short walk away. Traders, who have suffered flat or negative bonuses for years and were expecting good news at last, were shocked to find their pay packets down by as much as 30% on last year.

Headhunters say that equity traders at other banks should brace themselves for similar disappointments. “The cash is increasingly being distributed to the idea-generators. It’s no longer good enough just to put the deals through,” said one.

And even those City bankers who cashed out this year must be casting envious eyes across the Atlantic. Bonuses in Britain pale by comparison with Wall Street. Last week Goldman Sachs, the world’s No1 mergers adviser, announced that its fiscal 2005 profits had risen 24% to an all-time high of $5.6 billion (£3.2 billion) Chief executive Henry “Hank” Paulson reaped the benefit with about $37m in shares and stock options. Last year he was paid $29.8m.

Total pay and benefits at the bank rose 21% to $11.7 billion in 2005. The rise means Goldman’s 22,000 employees now average $521,000 in pay, bonus and benefits, up 12% from $466,000 in 2004.

Among big deals this year Goldman advised on Telefonica’s £17.7 billion bid for 02 and Ford’s $15 billion sale of Hertz, the car-rental company.

Staff at Goldman, Morgan Stanley and Lehman were all informed of their year-end bonuses last week. John Mack, chief executive and chairman of Morgan Stanley, will take a stock bonus of $11.5m for his first five months in the job plus an $800,000 base salary. Richard Fuld, Lehman Brothers’ chairman and chief executive, received a $14.9m stock bonus.

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