Merrill Employees Facing Slashed Bonuses

It's shaping up to be a blue bonus season for employees at Merrill Lynch.

Probable, continued massive writedowns at the investment bank are weighing on company profits, an effect that will be felt in the investment bank's traditional annual bonuses, CNBC has learned.

Fixed-income traders will be hit the hardest, with bonuses in that department likely to drop 40 percent on average and in some cases as much as 70 to 80 percent, sources.

The cutbacks stem primarily from additional subprime writedowns the firm is facing. Sources said the total could run an additional $3 billion to $6 billion -- which would be on top of the $8.4 billion in writedowns that Merrill already has seen.

Other departments at Merrill will get hit as well.

In the investment banking and equities areas, bonuses will be flat to 10 percent lower, while private client support will be down 5 to 10 percent.

Another reason for the decline in bonuses is because new CEO John Thain is insisting that financial pain be felt across the company, rather than just on the departments that have not met their numbers.

Sources say the move has drawn deep resentment in the company, possibly leading to lawsuits.