City bankers will suffer little or no impact from the bonus supertax imposed by the government last month, according to a Financial Times poll of leading investment banks.
Most banks, polled in an anonymised survey, said they would absorb all or part of the cost of the one-off 50 per cent tax by inflating their bonus pools, even at the risk of irritating the government and their own shareholders.
The results chime with intelligence garnered by headhunters. “The tax is going to be 90 per cent absorbed by the banks,” said one senior recruitment consultant with clients in the City.
In many cases that will mean banks doubling bonus pools, with the cost of the tax borne by shareholders. Dividends, already under pressure as regulators force banks to retain earnings to boost capital, are likely to be hit, bankers concede.
Some investors are growing increasingly irritated with the banks’ plans. “Remuneration structures that seek to increase tax efficiency should not result in additional costs to the company,” the Association of British Insurers warned on Friday.
One leading investor said: “Companies can’t increase the cost of employment to avoid staff paying their tax bills. We would like to see fewer banks held to ransom by staff demanding big bonuses.”
On Friday, JPMorgan is due to report its 2009 results, the first of a clutch of US banks expected to unveil bumper profits – and bonuses – over the week.
UK and continental European banks will report over the next six weeks, with several admitting in the FT questionnaire that their stance on the bonus tax would be driven by the precedent set by US groups, and the competitive pressure to keep pace with rivals’ bonuses.
Bonus pay-outs at the part-nationalised Royal Bank of Scotland, which announces results at the end of February, will be particularly sensitive.
US institutions are more likely to absorb the tax entirely, according to the poll. However, some – both US and European – said they would seek to split the cost of the bonus tax between the bank and staff. Where the cost was shared with bankers, it would be globally, not just with reference to London-based staff.
The strategy will annoy the Treasury. When Alistair Darling, the chancellor, announced the supertax, he predicted it would deter banks from paying big bonuses, raising only a modest £550m in revenue.
Earlier this week, the Treasury acknowledged it had failed in its aim of changing banks’ behaviour. However, that failure will be sweetened by the extra revenue it will now receive.
In the FT questionnaire, banks on average said they expected the tax to generate £5bn for the Treasury.
The FT sent its questionnaire to the leading investment banks in the City. JPMorgan, Goldman Sachs and Barclays Capital did not submit answers.
Additional reporting by Kate Burgess
