First the U.K. slapped a new tax on bankers' bonuses, and now the banks are slapping back by threatening to take their business elsewhere. If the banks follow through, London could lose its strong position as one of the world's leading financial centers. The banks' move also shows that if the governments around the world truly want to get control over the risks the banks take, they'll need to work together and find a global solution.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%The U.K. tax in question is the bank payroll tax, a 50% levy on bonuses, that went into effect in December and covers bonuses paid between now and April 2010. The measure was introduced by Chancellor Alistair Darling to stop banks from paying large bonuses to their staff. Instead, he wants the banks to use their profits to build up their reserves.
The bonus tax applies to High Street banks, building societies, investment banks and banking groups. Since the 2008 financial crisis, two of U.K.'s big banking groups -- Lloyds and Royal Bank of Scotland -- are now effectively state-controlled. The rest of the country's banking system needed billions of pounds of taxpayer support to stay afloat. Banks obviously think that even though the taxpayers in the U.S. and the U.K. bailed them out, they should be able to keep paying the kinds of bonuses that often rewarded the risky behaviors that led to the crisis.
The U.K.'s Loss Could Be Germany's Gain
In another retaliatory twist, the Financial Times reports that JPMorgan Chase (JPM) CEO Jamie Dimon has threatened to kill the plan to build its European headquarters in London's Canary Wharf for $2.4 billion (1.5 pounds) because of the new bonus tax.
JPMorgan isn't alone. Bloomberg reports others are making similar threats, such as Tullett Prebon, an interdealer broker, that says will help its employees move out of London. Blue Crest Capital Management, a London-based hedge firm, plans to move to Geneva, Switzerland.
Deutsche Bank (DB) quickly picked up on the opportunity, and its CEO Josef Ackermann encouraged banks to move to Germany, which he says doesn't plan to tax bonuses. In fact, Deutsche Bank says it will spread the impact of the U.K. bonus tax to all employees worldwide.
Clearly, banks believe they're in control and can avoid government interference -- even if it means moving to another country.
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