banking has become a truly parasitical business

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

“Bankers these days borrow money at 30 basis points and lend it to the
government at 300 basis points and then they go play golf.”
----------------------------------------------------------
“Last year banks made £80 billion in losses, but if they insist on
paying substantial rewards, I am determined to claw money back for the
taxpayer.”
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Deze lieden hebben dus een nieuwe handicap met golf. Het gewicht van hun
bonus die ze meeslepen ;).

Groet / Cees

December 10, 2009

Britain to Levy a One-Time Tax on Banker Bonuses
By LANDON THOMAS Jr.
The chancellor of the Exchequer, Alistair Darling, announced a one-time
tax on bank bonuses Wednesday, part of the government’s effort to shore
up the still-weak British economy.

Banks will be charged a 50 percent tax on 2009 bonuses of more than
£25,000, or $40,800. It will be imposed on the pool of bonuses paid by a
bank, rather than individual payments, and it will be paid by the bank —
not by the recipient of the bonus. It will take effect immediately and
will affect banks’ 2009 profits.

The levy represents the most direct attack on bank bonuses anywhere in
the world. All banks in Britain – including the London-based
subsidiaries of foreign banks — will be affected, whether they took
government funds or not.

“Last year banks made £80 billion in losses,” Mr. Darling said during a
pre-budget speech to Parliament that was frequently interrupted by howls
of protest from members of the opposition Conservative Party. “But if
they insist on paying substantial rewards, I am determined to claw money
back for the taxpayer.”

The tax measure was the highlight of a push by Mr. Darling to persuade
voters in Britain, as well as investors at home and abroad, that the
Labour Party has the ability to tackle Britain’s budget deficit, which
at 13 percent of gross domestic product is among the highest in Europe.

In his speech, he said his government aimed to more than halve the
deficit by 2013 through tax increases and sharp spending cuts.

His strong words on cutting the deficit come against a backdrop of
increasing investor unease about the ability of governments everywhere
to address deeply imbedded debt problems.

In Greece, where a new Socialist government is struggling to prove it is
serious about reducing a deficit that in proportion to its economy is
similar to Britain’s, the cost of insuring Greece’s sovereign debt
continued its recent rise Wednesday.

The same was true in Dubai, where there is an increasing fear that other
government-controlled entities beyond the troubled conglomerate Dubai
World will have to restructure their debts.

“The markets will be skeptical” of the British measures, said Simon
White, a partner at Variant Perception, a research house based in
London. “The numbers are minimal compared to the scale of the deficit.”

Mr. White pointed out that the current yields on government debt,
commonly known as gilts, do not reflect the real levels of risk related
to Britain’s public finances.

The British government has paid out £1 trillion in support of its
hobbled banking sector, a sum that underscores the financial sector’s
large contribution to the overall economy.

When times were good, the Labor government paid little heed to the rich
sums being earned in the City of London, the financial district, given
the large tax contribution that financial firms made — 43 percent of
corporate taxes in 2007.

But the collapse in bank profits has led to a precipitous drop-off in
tax receipts at a time when public expenditures are being extended to
combat a recession that is among the longest in Europe.

In his speech, Mr. Darling outlined a raft of austerity measures, such
as capping public sector pensions and wage increases that will hit core
members of the Labour Party constituency in order to appease the
increasingly restive holders of government bonds, who are likely to sell
their gilt holdings at the slightest sign that the government is not
committed to cutting its deficit.

The move to tax bonuses largely contradicts a core plank of the Labor
Party’s policy crafted by politicians like Peter Mandelson, the powerful
business secretary who along with former Prime Minister Tony Blair
fought hard to make Labor a business- and finance-friendly party.

Now, Prime Minister Gordon Brown has reverted to a style of class-based
electioneering.

For example, in a move that harkened back to the hard-left politics of
the Labor Party in the 1970’s, he derided the private school background
of David Cameron, his conservative rival.

The tax on bonuses, however, is not without precedent. In 1981, the
British government under Prime Minister Margaret Thatcher imposed a
one-time tax on bankers, who were making large profits thanks to the
high interests rates that prevailed at the time.

Twenty-eight years later, it is a Labor government taking the same
approach, although now it is the low interest rates coming from
aggressive central bank action that has led to what many see as unseemly
banking profits.

To a large extent the levy underpins a quite broad understanding here –
even among those generally sympathetic to the industry — that bank
profits this year were largely subsidized by the government due to
historically low interest rates.

“I think banking has become a truly parasitical business,” said Andrew
Hilton, who runs CSFI, a research center that focuses on financial
issues. “Bankers these days borrow money at 30 basis points and lend it
to the government at 300 basis points and then they go play golf.”

In a speech this week before a group of bankers and lawyers, Mr. Darling
said that bankers needed to be able “to look their neighbors in the
face” and explain why they deserved such sums at a time when their
fellow citizens are suffering.

At the center of the bonus debate is Royal Bank of Scotland, which after
a recent capital injection is now 84 percent owned by the government.
This week, the British Treasury announced that it would reserve the
right to veto an increase in the bank’s bonus pool to an estimated £1.5
billion and that no executive at the bank paid over £39,000 would
receive a discretionary cash bonus. Instead, they are to receive
deferred stock.

The Treasury has said that these steps are justified, given the large
taxpayer stake in the bank. But for many within the bank, and
shareholders as well, the veto threat is seen as political meddling that
will impair the bank’s competitiveness because top-flight bankers might
leave — a predicament similar to the one facing Citigroup in the United
States, which also took billions of dollars in U.S. government funds to
shore up its finances and has yet to pay it back.

Short sellers have targeted shares of R.B.S. lately, driving them down
about 14 percent in recent days.

This week, Robert E. Diamond, the head of Barclays investment bank and
traditionally one of the highest-paid bankers in London, warned that a
bonus tax could spark an exodus and hurt the City’s reputation as a
leading financial center.

But with even the traditionally banker-friendly Conservative Party
lashing out at the bonus culture and anti-banker sentiment growing,
political momentum for the tax seemed almost unstoppable.

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