Bank of England Calls Bluff of Bankers Who Threaten to Depart UK to Avoid Taxes

http://www.nakedcapitalism.com/2009/12/bank-of-england-says-good-riddance-to-bankers-who-depart-uk-to-avoid-taxes.html

Saturday, December 19, 2009

The UK is providing a lesson the US badly needs to learn, that push comes to shove, regulators hold the whip, and have to be willing to use it when necessary. Given how intransigent the financial services industry has become, the time for discipline has come.

Maybe some of them even want it secretly….

In response to a 50% bonus supertax, bankers in the UK are threatening to decamp, as if that will move the authorities to relent. They are not blinking. And with good reason. The idea that everyone ensconced in a large financial firm can decamp to a hedge fund or a private equity fund, or start their own boutique is wildly exaggerated. Even though many traders like to cast themselves as solo producers, they have tremendous advantages by operating in a large firm, namely, access to concentrated capital and information flows, and in many cases leverage that either cannot be obtained at all in a smaller firm format or would be far more costly. Similarly, a lot of supposed “talent” in other businesses depends on the firm franchise to a greater degree than they fancy.

No less than a former co-chairman of Goldman, John Whitehead, disputed the idea that lofty pay levels were necessary (and he was criticizing 2006 bonuses, which were trumped by 2007 pay levels):

“I’m appalled at the salaries,” the retired co-chairman of the securities industry’s most profitable firm said in an interview this week. At Goldman, which paid Chairman and Chief Executive Officer Lloyd Blankfein $54 million last year, compensation levels are “shocking,” Whitehead said. “They’re the leaders in this outrageous increase.”

Whitehead went even further, recommending the unthinkable, that Goldman cut pay:

Whitehead, who left the firm in 1984 and now chairs its charitable foundation, said Goldman should be courageous enough to curb bonuses, even if the effort to return a sense of restraint to Wall Street costs it some valued employees. No securities firm can match the pay available in a good year at the top hedge funds. “I would take the chance of losing a lot of them and let them see what happens when the hedge fund bubble, as I see it, ends.”

The Guardian tells us that Bank of England officials are telling unhappy bankers that they are free to take a hike, and England may well be better off without them. By contrast, every time US banks have gotten themselves all worked up (the list seems endless, plain vanilla products, mortgage cramdowns, usury ceilings, exiting the TARP so they can pay high bonuses) the US officialdom has caved. And this behavior simply encourages the banks to escalate their demands.

A senior bank of England official said that bankers moving overseas to avoid the bonus supertax could be price worth paying to achieve lasting reform of the sector.

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The Telegraph provides more commentary:

Haldane, as regular readers will know, stands out as one of the heroes of the crisis. In 2006 he was one of the lead authors of a Bank report which was among the first to warn of the impending crisis that could face the City as a result of the ballooning gap between what banks had in their vaults and what they were lending out to customers. In the past year or so he has given a number of speeches and papers which, among other things, have warned that the relationship between banks and the state is a “doom loop” in which banks continually try to “game” the regulators, and pointed out that the vast majority of banks’ apparent earnings over the past century have been based not on actual performance but on leverage [debt].

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