British banks look to 'share the pain' of UK supertax on bonuses

Staff likely to be told the impact will be spread on principle of "one bank"
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HSBC is close to following Deutsche Bank by spreading the impact of Alistair Darling's 50 per cent bonus supertax among its staff around the world.

The move is also being considered by Barclays Capital. While both have yet to make a final decision, senior executives at HSBC are understood to view "sharing the pain" as the likely outcome given the long-held principle of "one bank, one franchise".

Executives have been frustrated at what they see as a "lack of clarity" from the Government on how the tax will work and who will be affected by it. They contrast this with the situation in France, where the supertax is much more targeted and will affect traders. It is this that is preventing them from making a final call on imposing the "spread the pain" policy, which could prove controversial with bankers in territories where similar supertaxes are not being imposed.

However, disgruntled staff members in tax-free territories are likely to be told that it would be unfair on bankers in one or two nations to take a major hit to their income from taxes that affect overall banking profits.

Royal Bank of Scotland is at an earlier stage of deliberation than Barclays and HSBC. Its decisions are complicated by the fact that the company has to get government approval for its bonus policy, a consequence of the bank's taxpayer-funded bailout and entry into the asset protection scheme that covers around £280bn.

The Chancellor's tax has created outrage in the City and led to warnings that Britain will inevitably lose financial services business as a result. John Varley, the chief executive of Barclays, became the first bank bank boss to go public with such a criticism last night, saying: "I think that London could well be damaged by this." He also criticised Labour for failing to create "a predictable tax environment".

Other financial centres have been quick to launch "charm offensives" with transnational groups in the hopes of luring business from London.

But Andrew Haldane, the Bank of England's head of financial stability, said in an interview yesterday that an exodus "might be a price worth paying" to protect reforms to the financial system in the wake of the financial crisis.

The continuing controversy over bonuses is not limited to the UK. Yesterday, Morgan Stanley's chief executive, John Mack – who is retiring at the end of the year – agreed to forgo his annual bonus for the third consecutive year. He is the second US banking chief to decline a payout. Bank of America's Kenneth Lewis, who also steps down at the end of the year, is not taking a salary or bonus for the current year's work. Morgan Stanley's great rival Goldman Sachs has told its top managers that they will be paid only in restricted shares rather than cash, and that the shares will be subject to clawback.

In the US, critics of Wall Street have been arguing that investment banks' losses are "socialised" while profits are privatised. The average bonus on Wall Street is expected to rise by 40 per cent this year as a result of record trading volumes.

In a memo to his remuneration committee Mr Mack appears to have taken note of this by saying: "Given this unprecedented environment and the extraordinary financial support governments provided to our industry... I recommended to the Compensation Committee of the Board last week that I receive no year-end bonus."

The committee had reportedly wanted to pay him a bonus. On both sides of the Atlantic investment banks have thrived over the last year in a benign trading environment fostered by stimulus packages funded by taxpayers.