It's all down to business levels. A research note issued this week by Morgan Stanley predicted revenues in M&A and capital markets will fall 50% this year, which is bad news when combined with the evaporation of structured credit businesses.

“The crash in deals mean less work for bankers and bonuses following suit,” says Jörg Radeke, an economist at the CEBR.

Banks' Q1 figures confirm pay will be down, although not necessarily 40% down. At both Merrill Lynch and Morgan Stanley Q1 comp expenses were down around 15% on the same period of 2007, although staffing levels at both banks were 5% higher.

Deutsche Bank and Goldman look like dropping pay the most. Deutsche’s comp expenses were down 32% in Q1 and Goldman’s were down 35% – despite a 5% increase in staff following an acquisition.

Structural shift

The CEBR says lower bonuses aren’t just the result of lower business levels; structural factors will also play a role in the short term.

“There is a strong perception that bankers have been rewarded for getting it wrong. The credit crunch raises enormous questions about whether the City’s bonus culture has been encouraging excessive risk taking,” says its managing economist.

Fortunately, that perception is unlikely to last. “Bonuses will be driven by financial results,” says Alan Johnson at US compensation specialist Johnson Associates. “When the results come back, pay will come back as well.”

The CEBR seems to agree – it’s predicting bonuses will hit £9bn in 2011, higher than ever before (this may be an improvement, given that its previous release suggested they wouldn't recover until 2012).