London banks weed out staff amid bonus frenzy

London's financial sector may be booming, but some investment banks are axing jobs to ditch poorly performing staff, a move headhunters say can also help dampen rampant expectations about this year's bonuses.

Bonus hopes are running high after a record year for mergers and equity and bond deals in Europe. But as the banks decide who gets what, a few firms have decided to make job cuts.

HSBC and Dresdner Kleinwort have both cut jobs in their investment banking divisions, while Royal Bank of Scotland is closing its London proprietary trading desk in foreign exchange.

Andrew Chancellor, managing director at recruitment firm Robert Walters, said this would help keep bonus expectations in check.

"It also gives them a chance to get rid of the bottom percentage of their staff," he said. "It's just a good time to look at the business, clean it up a bit."

Investment banks have been raking in cash this year from a boom in M&A deals in Europe that has already topped the trillion dollar mark.

Top performing bankers could receive up to $10 million or more in bonuses, which are forecast to rise by as much as one third over last year's payouts.

Staff at Morgan Stanley, Goldman Sachs and Lehman Brothers are set to find out about their bonuses in the next week or so.

European banks, which typically award bonuses after January, are in the thick of performance reviews to determine how much each banker should get.