Banks plan to absorb cost of Darling's bonus tax

Faced with the prospect of reducing the size of their bonuses, major City firms are more likely to absorb the cost of Alistair Darling's 50% windfall tax than to cut back.

Some estimates reckon that the world's biggest investment banks intend to pay out more than £40 billion in salaries and bonuses in the next two weeks as the major institutions begin to report results. Particular attention will be paid to the US banks, beginning with JP Morgan Chase which reports its numbers on Friday.

It's widely assumed the US banks and institutions will be at the forefront of those that choose to absorb all or part of the one-off tax rather than risk losing staff.  The Centre for Economics and Business Research estimates that the  City bonus pool for 2009 will be around £6 bilion.  That's up 50% year on year, but well down from the record £10.2 billion pounds in 2007.

A survey of 12 banks published by the Financial Times said most would take this option and pass on the cost to shareholders. Banks surveyed by the newspaper include Barclays Capital, Bank of America Merrill Lynch, Morgan Stanley and Royal Bank of Scotland Plc. Goldman Sachs Group Inc. and JPMorgan Chase & Co. didn’t respond to the survey, according to the FT.

Some indication of the course of action that UK banks will take may come tomorrow when the chief executives of Royal Bank of Scotland, Lloyds Banking Group and Northern Rock face questions on bank pay when they meet MPs on the Treasury Select Committee.