Tax windfall on its way as banks stick to bonuses

A pedestrian walks past an old Bank sign in the City of London September 28, 2009.

LONDON (Reuters) - Britain looks set to reap a windfall of at least 2 billion pounds as its controversial tax on bank bonuses fails to deter banks from paying a round of big payouts.

With around three weeks to go before 2009 bonus packages are signed off, banking sources dismiss original government estimates that the 50 percent tax on bonuses over 25,000 pounds would raise around 550 million pounds.

"It will be multiples of that," said one. "And there are a few banks who could have to pay that on their own."

Most banks look set to choose to pay the tax themselves, rather than risk enraging staff by paying them significantly less than overseas colleagues, especially after a bumper year for investment banking.

Industry sources said the major international banks were likely to swallow most of the cost themselves. That could see big bills for London powerhouses such as Goldman Sachs (GS.N), Deutsche Bank (DBKGn.DE), JPMorgan (JPM.N), Barclays (BARC.L) and others.

Most banks say a final decision will be made near the end of this month, though Goldman and JP Morgan, which report earlier, could provide early indications of a trend.

SABRE RATTLING?

Britain's tax has provoked outrage across the industry and sparked fears that London will haemorrhage staff and business to rival financial centres.

"If you talk to Americans in both New York and the West Coast, the view is absolutely uniform. They cannot understand why Britain is trying to kill the golden goose by the bonus supertax," said James Perry, a partner at law firm Ashurst.

"They think we've lost it."

Goldman is weighing up the impact of the one-off bonus tax as well as a host of other measures, and may decide to move groups of people abroad, a person familiar with the situation said. No decisions had been made, the source said.

The UK rules might have been met with incredulity by some, but other countries are imposing similar measures.

France is slapping a 50 percent levy on financial traders' bonuses of above 27,500 euros, while the U.S. Federal Deposit Insurance Corp is meeting next week over rules on pay.

All G20 countries, including the U.S. and leading European Union countries, have agreed to guidelines on the structure of bank pay packages in an attempt to reduce excessively risky behaviour by bankers, blamed in part for helping sow the seeds of the credit crisis.

London's bonus pool was expected to recover to 6 billion pounds for 2009, the CEBR estimated in October, up 50 percent from last year, but well down from the record 10.2 billion pound paid out for 2007.

Government sources now say they could land at least 2 billion pounds from the tax to help ease stretched state coffers, though the original aim of the levy was to force banks to rethink bonuses rather than raise cash.

(Additional reporting by Douwe Miedema, editing by Will Waterman)