Channeling the Bonus Clairvoyance

Annual bonus checks are still months away from being printed on Wall Street, but bankers are dying to know exactly how the credit market meltdown will impact their end-of-the-year windfall.

When major investment banks calculate bonuses after the end of the third quarter, they'll decline by about 5 percent from last year, according to Options Group, a New York-based firm that tracks pay and hiring trends.

But that's an average. Bloomberg reports that if you sell mortgage-backed securities, you're going to find yourself in a stickier situation than the guys across the wall advising on LBOs.

Bonuses for employees in fixed-income units may fall as much as 10 percent this year, compared with a 10 percent gain last year, says Options Group.

Those who run hedge funds, if they haven't already closed up shop, will also be among the most vulnerable due to the credit crunch. Options Group thinks fund managers could see bonuses around 5 to 10 percent lower.

If the poor little rich boys in banking find this year unfavorable compared to 2006, it's as much in comparison to the skyrocketing growth over the past few years as it is about actual drop in comp. For instance, in investment banking, lower deal volume and trouble getting debt off the books will tighten coffers. But Options Group predicts that bonuses won't fall despite lower deal volume- they'll only grow more slowly than the astronomical 25 percent rate seen last year.

No matter where you fall on the finance food chain, take heart. While the past few weeks of rapid decline have dampened the fiscal year profits and dimmed outlooks, the two quarters before that produced record M&A deal volume and strong revenues from trading. Early speculations like those from Options Group may be mostly reactionary, and are counterbalanced by some who are still optimistic about '07 bonuses.

Payday might not be so miserable after all.

by Liz Gunnison