Pink slips hit Wall St.; Bear Stearns pares 240

LONDON (CNNMoney.com) -- Job cuts have begun at Bear Stearns and that could mark the start of a broader wave of layoffs across Wall Street as firms survey the damage caused by the recent downturn in financial markets.

Some 240 employees at a Bear Stearns lending unit were laid off Wednesday, according to a company spokesperson.

The pink slips come a little more than a month after two of the firm's hedge funds blew up, ultimately costing Bear Stearns co-president Warren Spector his job.

The meltdown in financial markets is likely to lead to more job cuts on Wall Street, headhunters say.

"Certainly some departments are going to be hurt," said Danny Sarch, president of Leitner Sarch Consultants, a New York firm which specializes in the financial services industry.

In many cases, the divisions which have been hit most by the recent downturn are the ones that have been aggressively growing their headcount. The prime brokerage business, which services hedge funds, for instance, has grown dramatically in recent years, Sarch noted.

Alan Johnson, managing director of Johnson Associates, a New York compensation consulting firm, expects layoffs in the mortgage and structured products divisions of the big banks before the end of the year.

Business was brisk at Wall Street firms until turmoil hit this summer. At the heart of the crisis are complex securities that have exploded on Wall Street in recent years. Trading and issuance of these debt instruments, which often are backed by home loans, has stalled amid a mortgage meltdown.

"This is not going to help structured credit traders or even vanilla credit traders, nor is it going to assist the career prospects for those in synthetic structures by any stretch of the imagination," said Shaun Springer, chief executive of Napier Scott, a headhunter in London, where several Wall Street firms have been growing their ranks.

One place Wall Streeters may find solace is in private equity firms, which while hit by the debt crunch, may not be as quick to cut jobs as a result.

"It seems like the reaction of investment banks sometimes is to throw a switch and freeze hiring - but private equity doesn't always work that way, said Brian Korb, who heads the private equity practice at New York search firm Glocap.

While private equity firms may find financing harder to come by, they have some flexibility. Buyout funds have been raising record amounts of money, and since investors commit money for the long term, they aren't subject to redemptions the way some hedge funds are, Korb said.

While job cuts may be an immediate fallout from the financial market downturn, end-of-year bonuses - the salvation for many Wall Streeters - appear safe for now. Johnson expects bonuses this year to top the record $23.9 billion Wall Street firms paid out last year.

But instead of splurging on Ferraris and fine art, Wall Street professionals may want to start saving. Johnson expects bonuses to start falling, by as much as 10 to 15 percent, in 2008, although others say it's still too early to forecast a downturn.

"A lot of the problems in subprime and mortgages, most of that is not going to show up until next year," Johnson said. That's also when financial losses from loan-related write offs will start to pressure firm-wide compensation at the brokerages.