Market woes 'to cost City jobs'

By Will Smale
BBC business reporter

The City of London employs 340,000 financial services workers

Thousands of jobs may be lost in the City of London, with record-breaking bonuses cut, as a result of the turmoil in the markets, economists have warned.

Jonathan Said, from the Centre for Economics and Business Research, told the BBC that up to 5,000 jobs may go.

The warning comes after weeks of upheaval in financial markets that has threatened to bring to an end a rich period of expansion and profit growth.

However, not all firms will be affected and some will gain from the volatility.

'Wide ranging impact'

"We won't know the true extent of job losses until we know the full impact of the current financial turbulence," Mr Said told the BBC News website.

Volatility in markets gives the very good financial institutions the opportunity to make even more money Brian Morgan, Cardiff Business School

"But roughly in the next six months we predict up to 5,000 job cuts across banks, private equity firms, hedge funds, stockbrokers and other financial groups as they try to cut their losses."

Mr Said added that he also expected to see City bonuses fall by up to 15% in 2007 as other businesses try to trim costs.

Last year, bonuses in London's financial centre - which employs 340,000 professional workers - rose 18% to a record £8.8bn ($17.5bn).

Offsetting losses

Fellow economist Brian Morgan of Cardiff Business School agreed that job cuts and reduced bonuses across the City were inevitable.

I see the expensive bars in the West End suffering more as City workers become a little more cautious with their cash Wine merchant Patrick Sandeman

But he added that the more savvy firms and individuals would be thoroughly enjoying the current market turbulence.

"It is very wrong to say that it is woe for the whole City," said Mr Morgan.

"If you are one of the banks that is over exposed to the global bad debt problem, then yes, you are going to be struggling.

"But volatility in markets gives the better financial institutions the opportunity to make even more money."

Mr Morgan said there was a number of ways for them to do this, such as taking out a "put option" on the direction of the FTSE 1000 share index.

Effectively betting on how far the FTSE will fall, Mr Morgan said that the returns on such a successful put option could more than offset any declines to a firm or fund's share portfolio.

Falling champagne sales

For London-based firms selling luxury items - be they super cars, multi-million pound properties, or very expensive wines - any decline in City bonuses this year will be bad news.

Patrick Sandeman, co-owner of wine merchant Lea and Sandeman, admitted there was bound to be a downturn.

"We do sell fine wines, but thankfully our business is not dependent upon people buying jeroboams of champagne," he said.

"I see the expensive bars in the West End suffering more as City workers become a little more cautious with their cash."

However, Mr Morgan added that the current market turbulence "needed to be put into perspective".

"It is nowhere near as bad as back in 2000/2001 [the bursting of the dotcom bubble]," he said.