BANKING analysts at UBS yesterday predicted a surge in creative accounting practices in the banking sector, as firms look to manipulate their books to minimise the impact of the government’s new balance sheet levy.
The team at UBS, led by respected analyst John-Paul Crutchley, has already begun to identify possible opportunities for individual banks to review their structures in light of the tax, which it expects to be replicated across banks’ entire balance sheets in the fullness of time as other countries follow suit.
The analysts singled out HSBC as an institution which could benefit from altering its accounting structure, arguing that although the bank traditionally uses its UK bank as one of the main trading counterparties within the group, these trades could be booked on the Hong Kong balance sheet instead.
UBS also looked at ways of reducing the cost of similar global levies, including in Germany, which has signalled its commitment to introducing a levy similar to the UK’s.
The analysts cited as an example Deutsche Bank, which has been subject to speculation over a possible acquisition of Postbank, in which it already owns a large stake. Current estimates assume Deutsche will be hit relatively hard by a German tax due to the significant level of wholesale funding within its retail bank. But that proportion would drop sharply if it bought Postbank, a bank heavy on the retail deposits which are outside the scope of the UK tax.
Chancellor George Osborne used the Budget on Tuesday to announce the £2bn annual levy. Banks will be charged at a rate of four basis points on their liabilities from next year, after discounting for insured deposits, tier one capital and long term funding. The rate rises to seven basis points from January 2012.