LONDON (AP):THOUSANDS OF jobs are likely to be slashed and annual bonuses severely crimped in Britain's financial sector because of the turbulence in equity and credit markets in recent weeks, economists said yesterday.
Up to 5,000 positions could be cut as firms try to trim expenses to cope with losses, said Jonathan Said, a senior economist at the Centre for Economics and Business Research.
Global stocks have headed south on fears of a worldwide credit crunch sparked by subprime mortgage lending troubles in the United States.
"We are looking at job losses across industries, including hedge funds, private equity, investment banks, those working in structured funds," said Said.
Philip Shaw, chief economist at Investec Securities, said that it was still early to draw conclusions but that if turbulence continues and deals are postponed the financial district should be "prepared for a wave of job losses in coming months."
Postponed deals
There is already evidence that a shortage of credit is delaying buyout deals.
A private equity purchase of music company EMI Group PLC scraped through after the bankers for buyer Terra Firma Capital Partners insisted the firm reach a 90 per cent shareholding threshold before handing over the money - banks normally waive that requirement when a buyer is close.
Virgin Media Inc. has delayed putting itself on the auction block and there is also murmuring in the market that Cadbury Schweppes will drop plans to spin off its U.S. drinks arm after already extending the deadline for bids because of market volatility.
Shaw said the real test will come in September, when the financial sector is back up to full speed after the traditionally quiet summer holiday period over August.
The market turbulence comes after a boom period for London's financial district, known as the City. Said pointed out that the industry had added around 10,000 jobs in the past six months amid strong trading on the London Stock Exchange and other markets.
Annual bonuses in the City, which employs 340,000 professionals, rose 18 per cent last January to a record 8.8 billion pounds (US$17.5 billion; €12.97 billion). Said noted that bonuses will fall by up to 15 per cent this year.
However, economists stressed that the current market jitters were not in the same league as the bursting of the dot-com bubble in 2000 and 2001, which led to a mild recession.
