View from City Road: Smith misses a Christmas bonus

The successful City broker Smith New Court yesterday produced the sort of results - interim pre-tax profits up five times to pounds 31.1m - that make shareholders drool and employees think fondly of bonuses to come.

With many people from country doctors to university professors (salary pounds 38,000 a year) wondering just how Goldman Sachs and other investment banks in the City can justify bonuses running into millions of dollars, Smith's chief executive, Michael Marks, can breathe a sigh of relief. Smith's bonuses are paid in the summer.

Mr Marks may find it less easy to shake off concerns about the volatility of Smith's earnings. He admits that Smith's traditional market-making business is volatile, but draws a line between it and proprietary trading, which he says Smiths is happy to avoid. His firm is quite happy to take a turn rather than get involved in the risky world of trading on its own account.

Instead, Mr Marks sees Smith's future as coming from its growing overseas earnings. Already 60 per cent of earnings comes from non- domestic equities, and the firm is expanding in Latin America, China and India.

Is it not curious, however, that the London Stock Exchange's most celebrated trading house should be turning away from exactly the area - proprietary trading - that has earnt the American investment bankers their fat bonuses?

If Smith is not going to take on the Americans at such trading, then it is unlikely that others will pick up the challenge, even when they are better placed because they are better capitalised. Such business involves a fine judgement of risk - which means a willingness that British houses seem to lack to invest heavily in computer software and people.

Smith's senior members may be able to look forward to some handsome payouts next year, but in a global context the American Christmas bonuses look set to leave their British counterparts far behind.