Some investment bankers on Wall Street and in the City of London face a cut in their year- end bonuses of up to 25 per cent because of the credit crunch, compensation experts say

Structured credit bankers, last year's highest-paid performers, are expected to be hardest hit, but bankers in other areas face anything between flat bonuses and declines of 10 to 15 per cent.

Aidan Kennedy, partner at Christian & Timbers global executive search firm, said: "With continued volatility and risk-averse investors, those fixed income divisions with the highest degree of exposure to the mortgage-backed securities arena will be forced to decide between scaling back bonuses by more than 25 per cent in the directly affected credit derivative teams, or spreading the pain.

"CDO [ collateralised debt obligations] structurers and marketers in particular will be looking back fondly on their 2006 bonus."

The decline in bonuses - the first for three years - will come as big disappointment for bankers, who have taken part in the biggest mergers and acquisitions boom since 2000 and expected to reap the rewards by the end of the year. At the end of the first half, global mergers and acquisitions activity reached a record $3,300 billion (€2,450 billion), according to Thomson Financial. However, the huge debt overhang left on banks' balance sheets from agreed deals will add significant costs and deplete bonus pools.

Kennedy said: "If confidence and deal flow does not return post the summer period, given the increased staffing of European leveraged finance teams in the past two years, even bankers with good first and second quarters under their belts may, at best, see their bonus flat to last year."

Last year, top traders of structured credit products took home between $2 million and $3 million, while global heads of credit derivatives pocketed more than $4.5 million, according to Armstrong International, the European executive search firm.

However, Jonathan Said, senior economist at the Centre for Economics and Business Research, a London think tank which is predicting a 10 to 15 per cent fall in year-end packages, said emerging market growth could mitigate some of the declines.

Most investment banks' remuneration committees typically do not meet until October or November, which is when the full impact of the credit crunch on bonuses will start to be known.