U.K. Bonus Tax Could Sting International Bankers

Dec. 9.09 | About: Royal Bank (RY)

By Boyd Erman

The British government appears sure to unveil a one-time tax on bonus payments to bankers, effective today. Reports are hitting newspapers confirming that the government will impose the tax on all banks operating in the country, including subsidiaries of foreign banks.

If true, this is a mixed blessing for Canadian banks. In the long term, it may have the effect of making London a less attractive place to bank, which could push business Canada's way.

However, in the short term, companies like Royal Bank of Canada (NYSE:RY) that have extensive London operations (the company's trading floor there rivals the size and complexity of any in the world) may have to pay a steep price.

Details are still sketchy but it appears the tax will amount to 50% of any bonus payment of more than about 10,000 pounds, which is to say, pretty much all bonus payments. The cost will be borne by the banks, not the bankers, meaning it will be a hit to the bottom lines of companies with big London operations. Considering the kind of bonuses a firm like RBC pays in London, the tax will add up in a hurry.