Why Goldman Sachs isn’t going anywhere


6:48 pm - January 5th 2010

by John B    


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The usual suspects are in full-on froth mode about the non-news on Goldman Sachs allegedly moving to somewhere godawful to escape a small, one-off tax on salaries.

Obviously, like nearly all right-wing frothers nearly all the time, they’re talking complete and utter bollocks.

US culture site the Awl nails it on why:

Goldman Sachs “is understood to be considering its options in the wake of the UK’s windfall tax on bankers’ bonuses, a new 50pc top income tax rate, and increased banking regulations” is hilarious, and it is also a dead giveaway that the Telegraph uses the phrasing “is understood” to introduce this idea. Let’s see: here’s an incredibly-secretive, super-private financial institution of which it can be “understood” that they’re going directly to the papers as the first volley in a bargaining plan. But: hilarious! They’re going to pretend that they’re willing to leave London? They’re going to offshore the London office? To where? Glamorous downtown Sofia? Belfast? Tallinn or Toronto?

Think it through, boys. Nobody who works in that office will leave London! What’s the point of being rich if you have to live somewhere crappy? It just doesn’t work like that. You can near-shore and off-shore the jobs no one wants to Salt Lake City or wherever—but you can’t move the income producers to a town where they can’t get a cab and a fat steak. If you give Goldman Sachs anything at all to stay put, it means you both are huge morons, just like New York City mayor Mike Bloomberg was when GS pretended it was going to move from downtown Manhattan to more expensive quarters in midtown, and they wouldn’t even have done that. Ever.

Word.

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About the author
John Band is a journalist, editor and market analyst, depending on who's asking and how much they're paying. He's also been a content director at a publishing company and a strategy consultant. He is a regular contributor to Liberal Conspiracy and also blogs at Banditry.
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Reader comments


1. David Boycott

The sheer arrogance of the ‘nobody will ever move’ brigade never ceases to amaze me. It’s not (primarily) about people moving – it’s about where new jobs are created. Given the growth of Goldman Sachs over the past two decades and the current state of flux in finance, we may safely assume that it will be creating a whole boatload of new jobs in the coming years, whether incremental new jobs or jobs to replace those in areas of business that have been run down.

Even on the basis of their current geographical footprint, they have the choice of creating those new jobs in:
France Germany Ireland Israel Italy Russia South Africa Spain Sweden Switzerland United Arab Emirates United Kingdom Australia & New Zealand China India Japan Korea Hong Kong Singapore Taiwan Thailand Argentina Brazil Canada Mexico United States

I do not believe any major investment banks will move that was not planning to move anyway. However, I think it is valid to say that new investment might reconsider their options. Financial institutions like many other industries do not congregate near each other by coincidence. There are considerable ‘ economies of agglomeration ‘ and that is why they often locate near others in the same industry. The same economies of agglomeration and networks can’t just be immediately replicated even in other financial centres. Moreover, what is often unsaid in this debate is how much the large IB get from lucrative government work. Would they risk losing permanently large streams of revenue for a one-off tax? Furthermore, GS are primary dealers for UK government debt. Lucrative virtually risk-free business for at least the next five years.

Maybe some on this site will say good riddance to any who do leave London. However, there will be a cost that transmits far beyond the financial sector if London declines as a financial centre. From legal services to accountancy and retail and their suppliers. No government can be held to ransom by the large investment houses. However, the threats to leave are empty rhetoric. Warnings about future investment are much less empty.

In my experience cabs and steaks of all kinds are widely available in both Zurich and Geneva. Cities which regularly feature highly in “quality of life” league tables. The former is surprisingly nice.

It’s not (primarily) about people moving

That’s what the financial press is claiming.

it’s about where new jobs are created.

And the financial services have destroyed how many jobs in the year? Shall we go over that?

If all we can attract are fly-by-night firms that are merely interested in rewarding bankers with massive bonuses for absurd risk-takingL – what benefits does the economy get?

The sheer arrogance of the ‘nobody will ever move’ brigade never ceases to amaze me.

This whine is the sound of someone’s cosy worldview being shattered.

So long GS! If that indeed is what’s going to happen.

6. david brough

I would just tell them all to fuck off and die. This country needs to focus on manufacturing and engineering with workers being given a greater role in decision making, rather than state capitalism in which management and the government decide between them what is to be done.

Yes, the obscene spectacle of the bailout should not be repeated. A lot of people who thought they were being clever by taking out all these fraudulent bank accounts (“legal”, but fake and deceptive) are now with building societies, it is a documented fact that the likes of the Co Op (which hasn’t had to go cap in hand to the taxpayer due to its sensible business model) have been gaining support.

People whinge about attacks on bankers. But what hurts more, being criticised on the internet or having your livelihood and your community ruined as happened to me and my mates in the 80s, as City boys laughed mockingly?

I am hesitant to query a post from John B because he knows far more about finance than me.

But I have to ask a question. If Goldman Sachs shift their EU English-speaking office to Ireland and employ their workers in that place (whilst acting in London), where is the workers’ tax jurisdiction?

The New York Times yesterday had a piece about how the pay czar’s problem in trying to get those Masters of the Universe who are taking federal money to understand that they will have to be more reasonable with their pay. Boy do these people whine about how they deserve all this money ….

“Now he’s on to deciding specific pay packages for 2010 for the top 25 executives at the shrinking list of companies left under his control. A.I.G. is once again his toughest customer. Those who got the reviled cash retention bonuses last year are due — under those contracts — to get the same bonuses this March. Feinberg still can’t stop the payments, but he has been threatening to pay those executives practically nothing, as he did this year, if they take the bonuses instead of agreeing to roll them into stock.

“If he tries that a second year, these guys are just going to start to come in late and leave work early,” says one of the people representing A.I.G. in the Feinberg process. “They’ll quietly look for other jobs. And six months or nine months from now they’ll be gone. Why should they stay? They’re already millionaires. Do you think a hundred- or two-hundred-thousand-dollar salary means anything to them?”

He should tell the bye, bye. And go fuck themselves.

“But I have to ask a question. If Goldman Sachs shift their EU English-speaking office to Ireland and employ their workers in that place (whilst acting in London), where is the workers’ tax jurisdiction?”

Well of course this is the sort of rubbish that should be stopped. If Goldman or anyone eles wants to move to Ireland ,then fine, bye bye. But take all your staff from the south east and their families with you. Make them haver to sell up and take all their sprogs with them and put them into Irish schools.

Don’t just open a fake office with a guy with a telephone and an internet connection and claim that this is head office.

remind us how the Euro-dollar market started…

11. So Much For Subtlety

9. sally – “Don’t just open a fake office with a guy with a telephone and an internet connection and claim that this is head office.”

I dimly remember something about certain EU regulations that say Goldman Sacks is already allowed to do this. And there is nothing Britain can do about it. They have to recognise the head office is wherever the company says it is as long as it is registered within the EU. Even if it is just a postbox.

Some companies already off shore some of their workforce. Citibank certainly used to. They sent some staff to Belgium and to France because housing prices in the UK were so high they could not offer their staff a competitive salary package. They were doing this in the 1990s.

London just is not that competitive. It is hugely expensive. It is dirty and crime ridden. The food is still not that good. Services are poor. And taxes are high. I don’t know many people working in the City who would not move to the mainland if they got a chance. I know some who have. I know some who are trying to get moved to Barbados or to Hong Kong. Switzerland remains a favourite.

@3, however, taxes in Geneva are higher than taxes in the UK, even after the supertax for super-high earners comes in. Taxes in Zurich are only slightly lower.

@7, no, that doesn’t work. Liability for UK income tax is incurred based on the number of days you spend working in the UK – the Irish-based employees would need to spend no more than 90 days a year working in London.

@11, the head office stuff is true-ish, but not as important as it’s been painted. Profits earned in the UK are taxed in the UK, whether the head office is in Ireland, Belgium or Timbuktu.

The reason why some FTSE companies have set up brass-plate head offices in Ireland is to do with remittances from foreign subsidiaries, which the UK taxes at 30%. If Banditry plc makes profits of gbp100m in the UK and gbp100m in Mauritius, and is headquartered in the UK, it’ll pay tax of 30%*gbp200m = gbp60m. If I move the head office to Ireland, then Banditry UK will still pay tax of gbp30m on its gbp100m profits, but the money from Mauritius (where tax is 0%) will be taxed at the 12.5% Irish rate = gbp12.5m.

I simply don’t believe you on the final paragraph. London is medium-expensive, it’s not a high-crime area, the food is generally rated the best of any European city, services are mid-table, as are taxes, and I don’t know a single person working in the City who has the slightest interest in moving to anywhere on the mainland that currently has an financial services industry (places where one might actually want to live, like Berlin and Barcelona, tend not to).

I don’t know a single person working in the City who has the slightest interest in moving to anywhere on the mainland that currently has an financial services industry.

Cripes, really? One of us is extremely unrepresentative then. Over Christmas lots of my friends who work in the City were talking about relocating. It wasn’t the new 50% rate; it wasn’t the new bonus tax; it wasn’t the prospect of new European regulation on hedge funds: it was the new rate, the new tax and the new regulations. London is looking just a bit less attractive as a financial centre. And that’s what the financial sector is all about – making money on the marginal calls. As Diogenes says – look at the start of the Eurobond market. Look a bit more recently at the impact of SarbOx on primary listings.

The FT (or possibly the economist) said recently that about 20% of the financial sector are non-British. They’ve moved before – why not again? Where I live in London is handily near both Paddington (for the Heathrow Express) and BNP Paribas. Lots of quiet streets on the weekends when they all go home to France…

14. So Much For Subtlety

12. john b – “I simply don’t believe you on the final paragraph. London is medium-expensive, it’s not a high-crime area, the food is generally rated the best of any European city, services are mid-table, as are taxes, and I don’t know a single person working in the City who has the slightest interest in moving to anywhere on the mainland that currently has an financial services industry (places where one might actually want to live, like Berlin and Barcelona, tend not to).”

Well you can believe what you like. It happens to be true. Medium expensive? Compared to what? Compare what you get for your high rent in Paris and then in London. Compare prices in London and Frankfurt. Who is rating the food? I agree London has a fabulous range of restaurants these days, but food is not merely restaurants. Look at what is on sale in your local supermarket and see what you’re paying for it. London has a higher crime rate than New York. It is one of the most dangerous cities for ordinary street crime in the Developed World if not the most so. Services are mid-range? Compared to what? You must be joking.

And as it happens what I said is true. I know bankers who have been relocated to Belgium. Their colleagues openly say they would like to go too. I have friends who are looking to be relocated to Barbados because of the better weather and other benefits. I know people looking to go back to Frankfurt – even Frankfurt! – rather than stay where they are. I know someone who has chosen to move his family to Paris rather than have them live in Britain with him. He sees them on most weekends. Everyone I know complains about the schools, the banks (irony really), the food and some but not all the NHS.

Quite….Eurobond market.

Someone really might want to explain why it exists at all. Couldn’t be the transaction tax (or was it retained interest, ?) that the US imposed on domestically issued bonds could it?

You know, taxes make a difference as to where markets locate themselves?

Eurodollar markets initially arose (late 1950s) because the USSR was concerned the US would steal its dollar assets, and hence invested in US assets via British banks (on the grounds that we weren’t hysterical paranoiacs about EVIL COMMUNISTS). They grew to massive levels (1970s/1980s) because of the US’s Regulation Q, which capped interest rates below inflation. Tax wasn’t a factor at all.

That’s a good general rule of thumb when talking about financial services: taxing salaries, bonuses and profits won’t drive people away (because 50% of a hell of a lot of money is still a hell of a lot of money) – but imposing regulations that make it impossible to make the profits to pay the salaries and bonuses certainly will.

@13, the regulations apply to the mainland as well, that’s the point. I didn’t say that I don’t know any bankers who’re considering relocating or who’ve relocated to Singapore, Hong Kong, Middle East, Dubai – of course I do.

@14, no, *actually* compare what you get for your high rent in London and Paris. *actually* compare what you can buy in London and Paris. You’ve got a weird idyllic view of mainland Europe as a village in Provence where you can buy half a pig from the friendly local butcher for ten francs – but having worked in Paris, it’s dirtier than London, has equivalent public services, more expensive housing, and far worse and more expensive supermarkets, local shops and low-end restaurants.

I imagine Frankfurt is more efficient and less expensive than Paris, but it’s not exactly super-appealing.

17 – Switzerland? That’s the market most are talking about – and new EU regulations on hedge funds will certainly not be applied by the gnomes of Zurich.

Eurodollars and Eurobonds are two different things. The first Eurobond was issued in 1963 (drafted by my old firm folks!) by Autostrade. It’s a different concept to Eurodollars, although the former could not exist without the latter. The reason for the creation of the Eurobond market (basically, bonds denominated in a currency other than the issuer’s own) was due to the imposition of an interest equalisation tax in the US (as well as other regulatory innovations) designed to make furriners pay a higher price for using the US bond market (then the biggest in the world, and the only place to raise dollars).

The effect was first that foreign institutions issued US-denominated bonds in the London market, and later that US institutions issed US-denominated bonds – in the London (Tokyo, Frankfurt etc) market. The US bond market took the biggest hit.

Does the Swiss govt and/or the cantons not negotiate tax rates with some individuals or companies?

Why are some Bluecrest people relocating?

http://www.bloomberg.com/apps/news?pid=20601109&sid=aXhE4PJs604c

It wouldn’t take many GS people to go to make a big difference…just the highest paid ones.

I’m not saying it will happen on a large scale – who knows? – but at the margin it’s clear the traffic is all one-way, isn’t it?

@18, isn’t Switzerland bound, at least in practice, by EEA rules on financial regulation?

@19, some cantons do, a bit. But in general, cantons like Geneva and Zurich where people actually want to live and work have similar levels of income taxation to the UK or France, and not much lower corporate tax; the cantons without much else to offer (Zug, Lucerne) have very low tax in the hope of attracting low-margin businesses. If you’re pulling tens of millions a year, you might be able to cope with life in Geneva or Zurich; you certainly won’t be willing to live in Zug or Lucerne.

…and the “on the margin” point – given the current contraction phase of the market, you’d have to look at relative levels of layoffs in London versus rest-of-world for major players; I’d be surprised if there was a significant trend either way.

Actually one of my holiday ideas is to see what some of these obscure Zug, Lucerne etc. towns are like.
Have you actually been?
I mean, they can’t be steak-free, can they?

Oh, I see Zug looks like hell on earth…not

http://www.time.com/time/magazine/article/0,9171,1000091,00.html

Where did the famous Swiss tax-exiles of the 60’s – Noel Coward, Peter Sellers, etc. – live?

If you want a rural life…

While Lucerne looks simply unbearable…

http://www.luzern.org/en/welcome.cfm?

“Over Christmas lots of my friends who work in the City were talking about relocating. It wasn’t the new 50% rate; ”

Good, you won’t be missed.

By the way, please do a proper relocation. eg Sell up your Surrey homes, and take your children out of school and take them with you. Oh, and give back your Chelsea season tickets, and your wifes Wimbledon membership.

People aren’t in a hurry to leave the city for the simple reason that they expect a conservative government to be in place before the next bonus round. We dont expect the 50% tax rate to come down in a hurry but at least the tories appreciate how the city is one of the few great industries we have left and without its tax revenues we simply dont have a hope of ever reducing our deficit.

If Labour or some horrendous lib-lab coallition miraculously appears then there will truly be an EXODUS. Why bother working 12 to 15 hours a day under great pressure to give away close to 60% or so of your income (when you tally up all the taxes, NI etc)? It simply isnt worth it and very few people think it is. Why stick around to be the whipping boy of the Labour core vote whose mindless and totally self-defeating instinct is to bash the rich at every opportunity (whilst the Swiss and Chinese are smart enough to welcome them with open arms).

Also, re City “layoffs” – the current situation is that the banks are now hiring like crazy, both in London and around the globe, in most areas, and the serious money and bonuses are back. So there is every opportunity for London based bankers to fuck off abroad and pay tax to more deserving and forward-looking governments somewhere else. Happy to leave socialists tossers in the UK to a rainy bankrupt island in the North Sea where they can practise left-wing politics alongside 14-hour day jobs of sweat-shop workers, agricultural labourers and call-centre operators servicing the BRIC economies of the late 2010s onwards…

“but at least the tories appreciate how the city is one of the few great industries we have left ”

Well you tories helped destroy most other industries in the 80s.

Nu Labour sucked up to the city for 10 years and look what good it did? You guys still fucked everything up.

Still, I always get a kick out of how similar Conservatives and Chinese Communists are. You just love a bit of military dictatorship.

You guys have proved in the last few years that you are not such geniuses after all. In fact you could probably get monkeys to do a better job at a fraction of the price.
.

“the current situation is that the banks are now hiring like crazy, both in London and around the globe, in most areas, and the serious money and bonuses are back.”

Only because the banks were bailed out like welfare queens. You guys live on welfare. You fuck up and get the tax payer to bail you out.

@Andy Jarm and Sally: get a room.

Try John Kay in Wednesday’s FT on: Unfettered finance has been the cause of all our crises
http://www.ft.com/cms/s/0/1a073a16-fa63-11de-beed-00144feab49a.html

Alternatively, there is SM Reinhart + Kenneth Rogoff: This Time is Different – Eight Centuries of Financial Folly (Princeton UP, 2009)

24 – I’m not going anywhere thanks. I’m not a banker (though I suppose I am technically ‘in the City’), and I won’t be paying the 50% rate for a good few years yet. Just reporting that of my friends who are bankers, a lot of them are talking about moving. I’m sure that it mostly is just talk, but there it is. Equally, I’m still at the stage of career where most of my friends don’t have kids, or houses in Surrey, or Wimbledon membership (I’m batting one from three there…). If I were young free and single, a few years spent in Hong Kong would look very attractive right now, and not just because of the weather.

20 – Switzerland’s not an EEA member. And, although there are 10 or so areas in which EU law is accepted in Switzerland (including the whole free movement shtick) financial regulations are most definitely not among them. The chances of Switzerland adopting stringent hedge fund regulations are, I would have thought, virtually nil, when they still haven’t adopted EU banking transparency laws.

I’m not predicting the death of the City (although there are certain plans that, if they came in, would certainly damage it’s competitiveness relative to other financial centres). What I am saying is that in a sector that is extemely mobile in terms of both capital and labour, marginal moves will have larger results. And for evidence, I’ll point to the US bond market in the 60s, and the NYSE in the 90s (for primary listings).

32. david brough

Andy Jarm normally makes about as much sense as Twat Munro, but he really highlights the hypocrisy of Tory filth on this matter.

They hector me for not going along with their nationalist shite and attempts to divide the workers along racial lines- which I reject, and that’s also why I have taken my stand against scum like Anjem Choudhary and urge those who have fallen for his lies to reject him.

But again. How fucking “patriotic” is it to just leave a country you supposedly “love”, just because you object to some too little too late government policy “restricting” the sector you work in, which has bene the beneficiary of billions of pounds of government welfare?

You fucking show me the asylum seeker who got as much as Shat West, Northern Wreck, etc. from the taxpayer. That’s right, you can’t. But you are such hypocrites you will go against your own ideology if it makes you more money.

And people wonder why I denounce them.


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