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UPDATE 1-UK still seen as key hub for Wall St despite tax hit
July 21, 2010 / 6:16 PM / 7 years ago

UPDATE 1-UK still seen as key hub for Wall St despite tax hit

(Updates with Citigroup clarification on CFO comments on UK)

* Top five Wall St banks paid $2.3 bln on UK bonus tax

* Morgan Stanley paid out $361 mln, Goldman $600 mln

* Few signs of bankers wanting to leave UK over bonus tax

By Sudip Kar-Gupta

LONDON, July 21 (Reuters) - Headhunters are confident London will maintain its position as one of the world’s top financial centres, in spite of discontent on Wall Street over the one-off UK tax on bankers’ bonuses for last year.

Wall Street’s top five banks paid out $2.3 billion to the British Treasury in the second quarter due to the controversial tax, after Morgan Stanley (MS.N) said on Wednesday it would pay $361 million. [ID:nN19193014]

Goldman Sachs (GS.N) said the tax resulted in extra costs of $600 million. JP Morgan (JPM.N) booked $550 million of expenses from the tax, while Bank of America (BAC.N) and Citigroup (C.N) both took charges of around $400 million.

The move rankled with certain executives, some of whom were quite vocal in their opposition to the tax.

JP Morgan is currently dragging its heels on a plan to build a $3 billion London headquarters, banking and property industry sources have said, and Chief Executive Jamie Dimon was angered by the UK tax. [ID:nLDE64K0NK] [ID:nN29131590]

Citigroup has also said that a further UK tax on bonuses would present it with a difficult choice, although a spokesman for the bank said on Wednesday it has no plans to quit Britain.

Chief Financial Officer John Gerspach had told reporters on a conference call last week that if another UK bonus tax were passed, “We would only have two alternatives, one would be to pay it, or one would be to move”.

“That’s an alternative that might be years in the making, but it’s nothing that could be put in place in six months,” he said.

Headhunters said there was little risk of a mass exodus.

“There’s a threat in terms of internal people wanting to move over to Asia, but that’s about 2 percent of staff turnover. It’s not a massive threat,” said Lee Thacker, who works for executive search firm Sheffield Haworth.

“Fundamentally, can Citigroup move its entire operation from London to New York? No, of course not. Their revenues would drop by something like 90 percent,” added Thacker.

TAXING TIMES

Politicians around the world have sought tougher regulation of the world’s financial industry in the wake of the global credit crisis, which many blamed on lax banking practices.

Imposing taxes on the sector will also help countries cut crippling fiscal deficits, as governments grapple with a fragile economic recovery.

Britain’s “one-off” tax on 2009 bonuses is expected to bring in about 2.5 billion pounds ($3.83 billion) from overseas and domestic firms.

Among UK banks, HSBC (HSBA.L) said the bonus tax cost it an estimated $355 million, Barclays (BARC.L) paid 225 million pounds and Royal Bank of Scotland (RBS.L) 208 million pounds.

Deutsche Bank (DBKGn.DE) set aside 225 million euros ($290.4 million) to pay the tax on bonuses in London.

While the new Conservative/Liberal Democrat coalition government has stepped back from reintroducing the bonus tax, Britain has joined France and Germany with a further levy on banks’ balance sheets, which the UK hopes will raise 2.5 billion pounds annually by 2013/2014. [ID:nLDE65L1L7]

British Prime Minister David Cameron was due to meet various leading American financial executives in New York on Wednesday to discuss the attractiveness of investing in London.

    Tony Deacon, who works at headhunting firm Emerald Group, said London’s advantageous geographical position between the Americas and Asia meant it remained a top choice for ambitious financiers who could deal with both Tokyo and New York during a working day.

    “Based in London, you can get a bit of the Americas and a bit of Asia. London really is the centre,” he said.

    Simon Vaughan-Edwards, managing director at headhunting firm Correlate Search, added that few of the people he dealt with had expressed any major concern over the bonus tax.

    “There’s a great deal of noise at the political level but as regards individuals, we have seen little impact on overall remuneration of senior bankers,” he said.

    “We were preparing ourselves for an outflow of talent to places like Switzerland last year, but it never came.”

    Table of the Q2 cost to Wall St banks from UK bonus tax:

    GOLDMAN SACHS -- $600 MLN

    JP MORGAN -- $550 MLN

    CITIGROUP -- $404 MLN

    BANK OF AMERICA -- $400 MLN

    MORGAN STANLEY -- $361 MLN

    TOTAL -- $2.32 BLN

    $1=.6534 pounds $1=.7748 euros Additional reporting by Matt Falloon and Maria Aspan; editing by Simon Jessop, Greg Mahlich

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