City hikes pay offers in fight for graduates

GRADUATES straight out of university are being offered six-figure packages as City firms face an unprecedented recruitment crisis with the number of applicants down more than 50 per cent from last year.

One investment bank has admitted that it has received only 400 applications for its next intake. This time last year, more than 1,200 undergraduates had applied. Another bank reported that the ratio of applicants to positions had dipped to 50 from 100, with a consequent slump in the quality of graduates.

Gordon Chesterman, deputy director of careers at Cambridge University, has observed the decline of interest in City jobs. "We have noticed a drop in the number of students attending the recruitment presentations."

The slump is being blamed on the competing attraction of internet start- ups. Undergraduates have been impressed by the careers of internet entrepreneurs, like Brent Hoberman, 30, and Martha Lane-Fox, 26, two former management consultants who set up the online travel agency, Lastminute.com. Their shareholdings were recently valued at pounds 20m each.

Banks have responded by increasing their starting salaries by at least 25 per cent to attract the brightest graduates. However, the same strategy has failed to boost the appeal of investment banks in America, where the situation is even more acute. One investment bank is offering initial salaries of $200,000 (pounds 123,000) for junior analysts, with a guaranteed rise of $80,000 after a year.

Nevertheless, US banks are finding that the cream of their student population is preferring to set up internet companies with the backing of venture capitalists. And the head of human resources at one investment bank in London predicted that the crisis in the UK could soon become as serious as America's. "We have seen a definite tail-off," he said. "It is much worse in the US but it is now starting to trickle through here too."

It is unusual for banks to admit, even privately, that they are struggling to find employees of the requisite calibre. The current dearth is especially surprising given that record bonuses, well in excess of pounds 1bn, are likely to be paid to the City's star financiers during the next few months.

The bonus round kicked off last week when at least pounds 100m was shared by London-based employees of Goldman Sachs. A similar pot will be split this week when Morgan Stanley Dean Witter, which has shared the spoils of a lucrative year for corporate financiers with Goldman, announces its bonuses.

Nevertheless, even the prospect of a seven-figure bonus a few years down the line appears inadequate next to the nine-figure fortunes being made on internet start-ups.

As well as the founders of Lastminute.com, this year has seen a series of young entrepreneurs generating multi-million pound paper fortunes as their online operations have taken off. The list of successful young internet players include Ajaz Ahmed, 26, who is worth pounds 40m by virtue of his company, named AKQA New Media. And, Damian Reeves, 25, of Zeus Technology is thought to be worth pounds 13m.

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