Going for bust

Letter from the City: The Square Mile is feeling the pinch. With more bloodbaths to come, even banke

The papers may have been full of stories about Royal Bank of Scotland slashing bonuses to staff and Lloyds' troubles over HBOS, but the human costs in the Square Mile have been borne by people like my friend Peter. They don't necessarily win much sympathy from a public baying for bankers' blood, but there are plenty more like him, with families facing seriously reduced circumstances, too.

This is a symptom of our times and it is going to get worse, much worse. Further shocks are in store across the pond, and the ripples won't take long to reach us here. The whisper in the City is about the more than three million so-called Alt-A mortgages outstanding in the US, representing a total of $1trn owed. An Alt-A mortgage is self-certified (you tell the bank what you earn and they don't check or verify it); it is a loan for those very nearly in the last chance saloon.

The problem is that more than 70 per cent of applicants for these self-certified loans have admitted to exaggerating their income. This when 30 per cent of their properties are now worth less than the outstanding mortgages. No wonder that Citibank today has 4,500 employees who "counsel" customers in loan restructuring - more than double the number it had a year ago.

My friend doesn’t think he’ll ever get another job in the City – and I can’t argue with him

The celebrity-name restaurants beloved of City bankers have been undergoing their own market correction - one of Jean-Christophe Novelli's outlets has just closed, while Antony Worrall Thompson had to close four of his - and more are likely to pull down the shutters, for there is plenty more trouble ahead, even for HSBC, which seemed to be immune from the downturn. The bank, out of whose Canary Wharf tower used to stream workers splashing out on champagne in Smollensky's and truffle oil in Carluccio's, has a US offshoot called Household. Back in 2004, HSBC ate into shareholder funds, biting off £10bn for its American arm, much of it going on sub-prime lending. Surprise, surprise: to all intents and purposes Household is now kaput, bust. The entire purchase price, plus some more, has been written off. We'll find out how bad the Household investment has been and what type of bloodbath there is for HSBC in the US on 2 March, when the bank reports its results. Observers are expecting further writedowns of between $15bn and $20bn.

It doesn't bode well for the little shooting syndicate I run in the West Country. A third hacks, a third City boys and a third locals, it has already been hit. Shooting is ruinously expensive (and a habit unlikely to elicit much support, I realise, from New Statesman readers), but while the locals and hacks are still all in for the coming season, which starts in mid-October, the City boys are feeling the pinch. Instead of shooting for six days, they've asked for three. Will they come at all next year?

But back to the present, and the uproar among shareholders and customers after Lloyds Banking Group announced that it was going to pay some serious bonuses to the people who got us into this position in the first place. Lloyds' merger with HBOS, supposedly cooked up by its chairman, Sir Victor Blank, over cocktails with Gordon Brown, has now left both with a serious hangover. Blank would be wise to follow the line taken by Spain's fourth-largest bank, Banc Sabadell. It announced this month that directors were taking a 10 per cent pay cut and the top management tier were having their pay frozen for the remainder of the year.

Not all is contrition in the City, however. One major (part-nationalised) European bank has been told by its government masters that it must not pay bonuses; so it has simply given its employees a 15 per cent increase in salary. The increase does not have to be disclosed as those receiving it are not directors of the bank. They've been promised an extra 30 per cent in the next quarter as long as their government doesn't find out. Never explain, never apologise, as the saying goes.

Dominic Prince is a former City editor of the Sunday Express