By SAM FLEMING and JAMES CHAPMAN

Last updated at 23:31 14 February 2008

The economy may be on the verge of a downturn but no one seems to have told the City's financial whizzkids.

While the rest of us struggle with stagnant house prices, slowing economic growth and soaring living costs, the Square Mile's fat cats are bracing themselves for another bumper bonus.

More than a third of City staff received higher bonus payments than last year.

Seventy per cent said their payouts either matched or exceeded their expectations, a survey of financial services employees showed yesterday.

The bonuses could amount to an estimated £7billion this year, shy of the record £8.8billion paid in 2006 but still an extraordinary amount of money given the problems afflicting the banking sector.

The biggest payments are likely to go to employees of leading investment banks and hedge funds, such as Merrill Lynch, Goldman Sachs, Morgan Stanley and Lehman Brothers.

Goldman has earned the nickname "Golden Sacks" thanks to the generosity of its payouts.

Chairman and chief executive Lloyd Blankfein was paid £35million last year, a record for an investment banking boss.

Barclays Capital president Bob Diamond is on track to qualify for pay and bonuses of at least £15million this year.

The bonus payments are based on bankers' performances in 2007, when the world economy was starting to suffer from the credit crunch.

Recruitment firm Morgan McKinley, which commissioned the survey, says the City jobs market has slowed in recent months, but this has clearly not fed through to performance-related payouts.

City number-crunchers are clearly still not feeling the pain, with 71 per cent of firms surveyed saying their bonus pots were "similar or larger" than in 2007.

Of the individuals polled, 67 per cent said they were "satisfied" with their payouts. Around half of London's bankers are thought to have been told about their bonuses.

The figures are usually determined in December and January and most employees are told about them by the middle of February. The money then arrives in their bank accounts by March, often leading to a boom in sales of

high-end sports cars, yachts and luxury flats.

Estate agents estimate £5billion in City bonus money was pumped into London property last year.

Predictions that this could slump to £2billion this year now look pessimistic.

The news will infuriate many ordinary families who are suffering as a result of highly-paid bankers' disastrous speculation on America's property market.

This caused the global credit crunch, which has led to dearer loans and mortgages.

The Bank of England warned on Wednesday that lenders are being forced to ration the supply of credit to their customers because their businesses are in such poor shape.

Banks are recording losses of hundreds of billions of dollars because of the crunch.

Robert Thesiger, chief executive of Morgan McKinley's parent firm Imprint, said: "Following a record bonus round in 2006/2007, speculation surrounding this year's bonuses was enormous.

"However, putting the impact of the credit crunch aside, 2007 was still a strong year for financial services and for the majority, bonus payouts appear to reflect this.

"These findings show that most employees received a similar or higher bonus payout than last year. Investment banks have managed expectations well."

The poll said basic salaries rose across all City pay levels, with the average rising 5 per cent.

Bradford & Bingley profits plunge after jump in mortgage arrears

Banks reacted with alarm last night after Bradford and Bingley reported a sharp rise in mortgage arrears and bad debts and a slump in profits.

Its shares plummeted 56 to 187 yesterday after it was revealed that profits fell by 49 per cent last year to £126m.

The bank's problems point to a crisis for millions of Britons who are struggling to cope with punishing mortgage bills and the spiralling cost of energy, food and transport.

B&B revealed £226million of "exceptional" charges, some of which are linked to the failure of loans tied to the disastrous U.S. mortgage market.

Thousands of the customers of the bank, which specialises in selling buy-to-let mortgages and sub-prime home loans, are clearly under pressure.

The number who are more than three months in arrears rose from 4,337 in 2006 to 6,170 at the end of the year - up by 43 per cent.

Write-offs for bad debts on mortgages tripled to £22.5 million in 2007, while the management admitted there is every chance of further losses.

Aggressive mortgage lending by B&B, which has been offering loans worth up to 130 per cent of a property's value, appears to have backfired.

There is evidence the bank is now taking a tough line with some of the people who are struggling to make repayments with threats of court action for repossession.

Numis Securities analyst James Hamilton added: "Arrears are up 43 per cent and we expect this trend to get materially worse as the UK economy slows to below trend growth in 2008."

The figure of £226million for exceptional charges was some three times higher than expected by the City.

Mamoun Tazi, an analyst at MF Global Securities, said: "The headline numbers are horrible."

He suggested there had been some "unacceptable" failures by the management to minimise the bank's exposure to the global credit crunch.

New of B&&B's problems led share prices in other high street names, including Alliance&Leicester, to be marked down.

The troubles at Northern Rock have turned the spotlight on banks such as B&B, which borrow heavily on international money markets to fund their mortgage loans.