Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won't prevent Wall Street from paying record bonuses, totalling almost $38 billion.

That money, split among about 186,000 workers at Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns, equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest US securities firms paid $36 billion to employees last year.

The bigger bonus pool derives from a record $9 billion of fees for arranging acquisitions and $5 billion for underwriting initial public offerings and sales of junk bonds, the most lucrative securities, Bloomberg data show.

Bankers' record fees help explain why 2007 will prove to be the industry's second- most profitable after the subprime mortgage market collapse led to losses at Merrill and Bear Stearns.

The last time bonuses declined was 2002 when the S&P's 500 Index fell 23 per cent, and Enron and WorldCom went bankrupt.

Goldman's record earnings and gains at Morgan Stanley and Lehman mean all the New York-based firms will be forced to pay more in a year when all but Goldman lost more than 20 per cent of their market value, said Charles Geisst, finance professor at Manhattan College in Riverdale, New York.

"They're all going to have to fall into line," said Geisst, author of 100 Years of Wall Street. "If Bear and Merrill plead poverty, they're going to lose all of their good people."

John Thain, Merrill's newly- appointed chairman and chief executive officer, is already grappling with the bonus issue and he doesn't start at the world's biggest brokerage until next month.

Thain, whose contract calls for him getting at least $44 million in cash and stock payable over five years, said top performers will receive bonuses, while those involved in the subprime market collapse that led to the firm's $8.4 billion third-quarter writedown will be penalised.

"Most of Merrill Lynch's businesses are actually doing well, and so what you have to do in that circumstance is to pay the people who are performing," he said in an interview last week.

"Getting that balance right, paying the people who perform well and taking enough money from the people who caused some of the problems, that is going to be one of the first topics I address."

Bonus pool securities firms typically use slightly less than 50 per cent of their revenue to pay salaries, benefits and bonuses, a percentage that firms adjust throughout the year. This year's bonus estimate was based on the five-year average ratio at each of the five firms. Year-end bonuses usually account for about 60 per cent of compensation.

In the first nine months of 2007, Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns told their shareholders that they set aside $52.4 billion for compensation, up 9 per cent from a year earlier.

For the whole year, the figure rises to $62.5 billion, according to analysts' estimates that combined revenue at the five largest securities firms will climb 1.7 per cent to $135 billion.

That brings bonuses to almost $38 billion. The total increases when bonuses for employees at hedge funds, leveraged buyout firms and banks such as New York-based JPMorgan Chase and Frankfurt-based Deutsche Bank are included. The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria.

The average $201,500 bonus is more than four times the $48,201 median household income in the US last year, according to US Census Bureau statistics.

"They're playing a good hand as aggressively as you can play it," said John Gutfreund, president of Gutfreund and former chief executive officer of Salomon Brothers, now part of New York-based Citigroup. That has put Goldman's competitors in "an awkward position", he said.

Merrill's revenue probably will decline 13 per cent this year after losses from mortgage-related bets in the third quarter, analysts estimate. Merrill said last month that it set aside 58 per cent of revenue in the first nine months of 2007 for compensation, up from 49 per cent a year earlier, to "appropriately reward employees". The firm said the ratio may rise further in the fourth quarter. "I can understand what they're doing at Merrill," said William Fitzpatrick, an analyst at Wisconsin-based Johnson Asset Management, which oversees $1.7 billion and holds Morgan Stanley shares. "If they don't pay up now, they could lose a lot of their top performers."

Bankers are showing their confidence about the size of payouts they expect to receive by donating record amounts to organisations including the American Museum of Natural History in New York. The museum raised $3.2 million last week at its annual gala dinner, said communications director Steve Reichl. About 650 people attended, the most ever, he said.

Park Avenue UJA-Federation, a Jewish philanthropy, raised $41 million, up from $38 million last year, at an annual event hosted last month at the home of Alan Greenberg, the 80-year-old chairman of Bear Stearns's executive committee.

Demand for "super-luxury" apartments in Manhattan, those priced at or above $10 million, was also at an all-time high in 2007, said Pamela Liebman, chief executive officer of the Corcoran Group real estate brokers.

A 12-room Park Avenue apartment placed on the market this month sold in less than a week for more than the $12 million asking price, she said.

"Some people were a little surprised because there's been so much negative talk in the press about the market," Ms Liebman said.

UBS AG, Europe's biggest bank by assets, is capping the cash portion of investment bank bonuses this year at $750,000 and paying anything above that in stock, said a person familiar with the company's plans.

The Zurich-based bank, which reported its first quarterly loss in almost five years, is adding a new type of restricted stock award that employees can sell after one year, instead of waiting for three years, the person said. - (Bloomberg)