Investment bankers will see their annual bonuses fall by up to 50% this year, and many may lose their jobs altogether, according to new research.

A study by financial services recruitment group Armstrong International found that banks are likely to target bonus cuts at staff deemed less essential to future performance.

"2002 will see remuneration driven less by reward for current year performance and more by an incentive to retain key staff vital to expected pipeline business," the study said.

The report predicted that the 10 to 20% worst-performing staff could get no bonus at all.

The gloomy outlook on bonuses comes as investment banks worldwide are retrenching in the face of dwindling business volumes.

A steep stock market slump and widespread economic uncertainty has caused a sharp fall-off in big corporate deals, slashing investment banking revenue.

Jobs cull

The drop in bonus payments, frequently spent on big-ticket items such as cars or houses, could have a knock-on effect on the economies of major financial centres such as London and Frankfurt.

Armstrong forecast that a recent wave of banking lay-offs is set to continue, with jobs in equity research, and sales and trading most likely to be axed.

The report said banks would cut their average front office staffing levels to 300 from about 400.

Thousands of global investment banking jobs have already been cut this year, with Dresdner Bank and JP Morgan Chase among firms to have announced sweeping lay-offs in recent weeks.

Earlier this year, the Centre for Economics and Business Research, a London-based think-tank, predicted that 21,000 jobs would go in the City of London financial district by the end of 2003.