Lehman's special payouts set to spark fresh bonus row

The City faced a fresh bonus row today over bankers at Lehman Brothers' European arm getting special payouts.

As the collapsed Wall Street investment bank's European business is being unwound, more staff are being hired in the capital with the offer of sizeable bonuses.

The middle and back office employees are working with the administrators on millions of deals to reconcile them with trading partners and clients to identify what is owed or may be claimed, said the Financial Times.

A judge in New York, presiding over Lehman's bankruptcy in the United States, last week gave the go-ahead for £30million of bonuses to be paid to about 230 derivatives traders tasked with unwinding a £6billion portfolio.

Steven Pearson, of PricewaterhouseCoopers, one of a quartet of administrators for the bank's European arm, defended the pay packages being offered to retain key staff in London.

"We've made our strategy and reasoning clear to our creditors," he said. "We need to keep up with the market and we have to bear in mind that staff here have much narrower career development options than at other banks."

The idea of paying bonuses to staff at a dead bank is likely to astound many MPs and members of the public.

But Mr Pearson stressed that keeping on staff with experience at the bank could help to maximise the funds returned to creditors.

Lehman Europe employed 5,300 staff before the bank's collapse in September last year.

Administrators were set to maintain a workforce of 360 as they sought to put a value on millions of transactions on its books which may be worth hundreds of millions of pounds to investors or other parties.

However, Lehman's European arm is now believed to employ some 440 staff with some on generous packages.