London Briefing/Fiona Walsh:This time last year, traders and dealmakers in the City of London were looking forward to record bonus payments on the back of the boom in merger and acquisition activity. Now, however, some will be lucky if they get through Christmas with a job, let alone a bonus.
Battered by the subprime contagion that has spread from the US throughout the rest of the world, financial institutions are laying off staff in increasing numbers.
As they calculate their exposure to the crisis-hit US mortgage market, losses have piled up for the large investment banks, with shock profits warnings last week from Citigroup and Merrill Lynch.
With a $5.5 billion (€3.9 billion) hit on mortgages and bad loans, Merrill admitted it would fall into the red this year for the first time in six years.
At Swiss-based UBS, meanwhile, 1,500 jobs are to go globally as it too counts the cost of the crisis.
As deals dry up in the credit crunch, cutbacks are being seen in virtually every sector of the City - from the investment banks and private-equity firms in the Square Mile and Canary Wharf to "hedge-fund alley" in swanky Mayfair.
About 2,000 jobs will go in the fourth quarter, according to the Centre for Economics and Business Research (CEBR), but the real pain will be felt next year, when 6,500 jobs are likely to be axed.
The CEBR predicts that economic growth in London will slow from 3.6 per cent this year to 1.4 per cent in 2008 - if so, it will be the first time in six years that the capital fails to grow at a faster pace than the country as a whole.
Uncertainty created by tighter conditions in financial markets is already having a knock-on effect in other areas, such as the top-end housing market in the capital.
Prices in the £1 million-plus (€1.44 million) bracket have roared ahead over the past couple of years, fuelled by the bonus windfalls, but there are now signs of a slowdown.
Along with the luxury housing sector, one of the biggest beneficiaries of bonus cash has been the art market.
According to figures from art insurance company Hiscox, prices of contemporary art have jumped by more than 50 per cent over the past year.
However, that confidence will be put to the test this week when buyers gather in London for the Frieze Art Fair, and again at Sotheby's on Friday, when the auction house holds its biggest-yet sale of contemporary art, with works from artists including Francis Bacon and Andy Warhol worth an estimated £48 million.
The CEBR predicts that total bonus payments will be slashed by 16 per cent this year, from the record high of £8.8 billion paid out in 2006. They could fall further the following year, to £6.2 billion, which would be the lowest level since 2003.
The impact of the anticipated job cutbacks is likely to be particularly marked, as the City has become accustomed to an ever- expanding workforce.
This year, some 11,000 jobs were added, bringing the total in the financial sector to a record 349,000.
If the CEBR's calculations are correct, the number of jobs lost in the City next year will be the highest since the dotcom bubble burst seven years ago.
The one piece of good news is that, for the moment at least, things are nowhere near as bad as they were back then, when an estimated 20,000 financial sector workers joined the ranks of the unemployed.
Deal of the decade
As British prime minister Gordon Brown was bottling out of a snap election over the weekend, the opposition, in the form of Conservative party deputy chairman Lord Michael Ashcroft, was busy boosting its coffers in spectacular style.
Ashcroft, a big donor to the Tories, has pulled off what looks like the deal of the decade with the sale of his OneSource Services cleaning and building maintenance business.
OneSource is incorporated in Belize, where tax exile Ashcroft is based. It operates in the US and is quoted on the AIM. Its shares were trading at just 655p last Friday. On Monday, Ashcroft announced the sale of the loss-making company for a stunning £48.11 a share, valuing it at £179 million.
One of the attractions to the buyer, rival US maintenance services group ABM Industries, is the hefty tax losses accumulated by OneSource, which ABM says will save it $14 million a year in tax.
For the combative and often controversial Ashcroft, already one of Britain's wealthiest men, the deal will boost his estimated £800 million fortune by £135 million.
• Fiona Walsh writes for theGuardian newspaper in London
