LONDON -"It's a recession when your neighbour loses his job, it's a depression when you lose yours."

The words of Harry Truman, the former US president, are ringing in the ears of bankers and traders this week after their bosses announced sweeping job cuts in the City of London.

Merrill Lynch's sudden alert on Thursday that it would cut 4,000 jobs worldwide - 1,000 in Europe - sent bankers into a deep depression. The next day analysts predicted that Citigroup would chop some 25,000 jobs in the next few months, while UBS was rumoured this week to be looking at headcount reductions of 10 per cent.

Until now, most London banks have only trimmed those jobs directly affected by the US housing crisis. Credit Suisse has shaved the headcount in its securities unit by about 150 in the UK, while Deutsche Bank said that about 120 UK jobs would go.

Experts say investment banking is facing its worst crisis in 30 years and estimate revenues will fall by as much as 45 per cent this year.

A combination of writedowns due to the troubled US mortgage market and weaker revenues has already cost the industry the equivalent of six financial quarters of earnings. This means significant job losses across all areas of the City of London will take place this year. Estimates this week from JP Morgan suggest that more than 40,000 jobs will go this year.

Knowing how deep to cut is a difficult judgment for the banks to make. But keeping depressed bankers on the payroll can be just as much of a challenge. "We pretty much know from now that we won't be making a bonus this year, so it's hard to stay motivated," one M&A banker at a large City bank said. "They may as well put Prozac in our pay cheques from now."