Talent may head East in wake of bonus tax
http://www.straitstimes.com/Money/St...ry_465636.html
Dec 12, 2009
Talent may head East in wake of bonus tax
But windfall tax won't lead banks to exit Europe, say analysts
By Gabriel Chen
THE decision by Britain and France to impose a windfall tax on bankers' bonuses is unlikely to drive global banks out of the West to fast-growing regions such as Asia in a big way, said bankers and headhunters here.
But they believed that these measures, coupled with the tight scrutiny over employee compensation and the move towards higher income taxes in the West, may see more talented finance practitioners move to this part of the world.
And this could benefit financial centres like Singapore and Hong Kong.
On Wednesday, British Chancellor Alistair Darling unveiled a one-time tax on bank bonuses, drawing howls of outrage from senior bankers but also support from the likes of Nobel prize-winning economist Paul Krugman, who wrote on his New York Times blog: 'Darling, I love you.'
Under the new one-time tax, any bank operating in Britain must pay a tax of 50 per cent on all discretionary bonuses of more than £25,000 (S$56,500) paid between now and April 5 next year.
Banks attempting 'avoidance schemes' by postponing bonuses would face further, unspecified punishments.
Britain's latest move comes in the wake of the announcement that it made earlier this year that bankers themselves will be subject to a new top income tax rate of 50 per cent - up from 40 per cent. This will start in April and be levied on any banker earning more than £150,000 a year.
France has since joined Britain in levying a windfall tax on banking bonuses. This has stepped up pressure on other nations - including the United States - to follow suit.
Bankers in Singapore said that Britain's latest tax will affect banks which base their European operations in London, including Goldman Sachs and JPMorgan.
As their staff are highly paid and many of their bonuses are contractually guaranteed, it will be hard for the banks to avoid paying them.
Still, it is far-fetched to expect a mass exodus of banks out of London, they added.
'With high taxes in the United Kingdom, many hedge funds have left the UK for Switzerland over the last six to 12 months. Will banks follow suit? Some banks will, some won't,' said Morgan Stanley's chairman for South-east Asia, Mr Ronald Ong.
But even though the finance industry is unlikely to quit centres like London, banks will probably have to make adjustments to cope with the higher costs.
And these moves could eventually benefit financial hubs like Singapore or Hong Kong, headhunters say.
For example, Singapore is emerging as a rival to Switzerland in private banking, while Hong Kong is Asia's key investment banking centre because of its status as a gateway to China.
Search firm Robert Walters Singapore manager Gary Lai said that banks may look to relocate their global heads to this part of the world or senior staff in functions such as human resources or technology to Asia in a bid to avoid the scrutiny of bonus payments.
'Some clients are exploring the possibility of moving their employment contracts from countries which have restrictions on compensation packages to countries that don't. But so far, no one has done it yet,' Mr Lai said.
Bankers argue the real problem facing London is not so much this one-off windfall tax, but that its top-tier income tax rate will rise to 50 per cent, throwing its leadership as a top global financial centre for the foreseeable future into question.
'It makes London less attractive as a place to do business. It's not bad for Singapore and this place needs to stay open for talent. We're well placed to grow,' said Standard Chartered Bank's regional chief executive for Singapore and South-east Asia, Mr Ray Ferguson.
In Singapore, the top individual income tax rate is 20 per cent.
Mr Tim Hird, managing director of Robert Half Singapore, said that while financial institutions in Europe are capping executive bonuses, there is no such trend in Singapore yet.
This could also lead to more financial professionals in Europe seeking 'brighter' work opportunities in this part of the world, he added.
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