Goldman Sachs is being widely blamed within the financial industry for igniting a war with the government over its bonus supertax.
Rivals are privately incensed at the scale of the rewards the Wall Street giant is preparing to dole out in the forthcoming annual bonus round. The firm’s largesse has forced many competitors to follow suit, which has pushed bonuses back to pre-credit crunch levels and thrust the industry into the eye of a political storm.
The huge public outcry over Goldman’s bumper payouts has encouraged an unpopular government to exact revenge on an equally unpopular financial industry, rivals said. The firm has made little secret of its desire to reward staff handsomely after profits hit a record over the first three quarters of 2009. The average Goldman Sachs City worker is set to bank more than £400,000 in pay and bonuses for 2009 after the group profited from vastly diminished competition in the investment banking industry. One well-placed City source said: ‘Goldman has been telling its staff that they’ll be very, very competitive (with 2009 bonuses). ‘That creates problems, especially for the likes of Royal Bank of Scotland.’ Faced with an eyewatering bill from the banking bailout, the government last year imposed a one-off windfall tax on the City.
Firms will be liable to pay a one-off 50 per cent tax on any bonus payment above £25,000. The Government is also introducing a 50 per cent tax on all earnings above £150,000 from next year. There are growing rumblings of discontent within the Square Mile over the supertax. Like a number of City banks, Goldman itself is understood to be considering its options in the wake of Chancellor Alistair Darling’s bonus raid.
However, sources said there are no imminent plans to shift a number of its most profitable business units overseas. Sources at other investment banks operating in London said their firms were biding their time until the general election, which must be held by early June. As long as the next government resists the temptation to repeat the supertax, the prospect of a flood of major foreign banks quitting the City seems remote, the sources said.
Nevertheless, hundreds of foreign City-based bankers are expected to move to Frankfurt, Paris and Zurich once they have pocketed their bonuses for 2009