The Edge

Richard Northedge takes on corporate finance

Goldman Sachs should have resisted banker bashing

Sell Goldman Sachs. The US investment bank is going soft. It has cancelled a wheeze to exploit the cut in top-rate UK income tax. But don’t clients choose Goldman because it is so good at navigating through such financial minefields?

Goldman Sachs Group, Inc. (NYSE:GS) considered delaying staff bonus payments in London until after 5 April so that those earning more than £150,000 (an awful lot of its employees) would pay 45p rather than 50p in the pound on their windfall.

Well why not? It’s called tax planning. When the basic rate of income tax falls, major companies delay their dividend payment into the new tax year so that non-institutional investors benefit from the cut. Those companies would expect Goldman Sachs to advice them to do that.

Weren’t we encouraged to buy big-ticket items before the VAT rises of recent years – or rush to fill the petrol tank on budget night before the duty goes up? Why put £10,000 into shares now, when from April the investment can be part of the next ISA allowance?

When Barack Obama suddenly raised US taxes at the New Year, Goldman rushed out its American bonuses to beat the rise. You wouldn’t expect anything else from a bank known for its aggressive tactics.

But Goldman’s experience in London shows that banker bashing is not over yet. Politicians followed the media in denouncing the plan; the bankers’ own trade association distanced itself from the proposal and the governor of the Bank of England said he was “a bit disappointed” – tough talk from Sir Mervyn King. Other banks said they would not follow Goldman, even though it would hit their staff, rather than share the American bank’s opprobrium.

It is interesting that Goldman still does not think its reputation among bank-bashers to be so low that it had nothing to lose by proceeding with its tax wheeze. The public is hardly going to boycott the bank, Starbucks-style; companies would still seek its skills and – on past experience – government would still seek Goldman’s advice to solve major problems such as selling bonds once the AAA-rating is lost or privatising Royal Bank of Scotland.

Yet Goldman blinked first. It rolled over, under pressure, and abandoned its plan to delay bonus payments, thus lumbering its staff with hefty tax bills. It has gone soft – and that is a much better reason why companies and government should think twice before using the bank again.

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