US Banks Pay Bulk Of GBP2.5B UK Bonus Tax, Hitting Earnings

20th Jul 2010 18:20

By Margot Patrick Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.S. banks have paid the bulk of the U.K.'s GBP2.5 billion ($3.8 billion) bonus tax that was designed to curb excessive pay, hitting their second-quarter earnings while creating a windfall for the U.K.'s new government. According to statements in the past few days from JP Morgan Chase & Co. (JPM), Citigroup Inc. (C), Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS), the four banks have collectively paid at least $2 billion toward the tax. Morgan Stanley (MS), due to report second-quarter earnings Wednesday, is expected to say it too will pay several hundred million. The one-time tax to collect 50% of bank bonuses above GBP25,000 was introduced in December by former Chancellor of the Exchequer Alistair Darling, who initially estimated it would raise GBP550 million. The Office of National Statistics last month said GBP2.5 billion had been paid. JP Morgan in its earnings last week said it paid $550 million, while Citigroup's charge, disclosed Friday, was $404 million. Bank of America on Friday said it paid $870 million in extra expenses in the second quarter, which included the charge, but declined to give a more detailed figure. Goldman Sachs on Tuesday said its cost from the tax was $600 million. The numbers had been flagged by the banks earlier in the year, and analysts were expecting them to add another dampener to what was a lackluster period for investment banks. The charge applied to all bank employees working in the U.K., regardless of where the parent company was located. While painful for bank shareholders, the tax has been a boon for the U.K.'s new Conservative-Liberal Democrat coalition government, which unveiled a raft a spending cuts in its June budget and plans to tax banks further. From next year, a levy on banks' balance sheets is to raise GBP2 billion, rising to GBP2.5 billion the following year as it is fully implemented. It too will apply to both local banks and international ones with U.K. operations. And Chancellor of the Exchequer George Osborne has warned the industry to be on alert for further taxes and regulations, particularly relating to remuneration. Indeed, some analysts have said the bonus tax failed in its aim, since the larger-than-expected amount raised meant there was little evidence banks had significantly curtailed payments. Some banks, including Deutsche Bank AG (DB) and Standard Chartered PLC (STAN.LN), said they would cut bonus pots globally to help cover the charge. Others, such as Barclays PLC (BCS), have raised salaries for investment banking staff, in an effort to make bonuses a smaller proportion of overall compensation. The U.K. five major banks by assets--Barclays, HSBC Holdings PLC (HBC), Lloyds Banking Group (LYG), Royal Bank of Scotland Group PLC (RBS) and Standard Chartered--collectively paid about $1.1 billion to cover their bonus tax bills. Credit Suisse estimated its charge at CHF400 million ($381.5 million) and UBS earlier in the year said it expected to pay CHF300 million ($286 million). Both banks will disclose the final charges when they report second-quarter earnings, Credit Suisse on Thursday and UBS on July 27. Deutsche Bank estimated its bill at EUR225 million ($290 million), a figure it is expected to update when it reports earnings July 27. -By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451; [email protected] (Laurence Norman and Patricia Kowsmann contributed to this article.) (END) Dow Jones Newswires July 20, 2010 13:20 ET (17:20 GMT)