Wednesday, January 4, 2012
Barclays 'risks backlash' unless tax affairs simplified
Bruce Packard, an analyst at Seymour Pierce, said Barclays risks "a fierce customer backlash" if it does not reduce its exposure to offshore tax havens or limit legitimate tax avoidance, and focus instead on service.
In an attempt to restore trust in the industry, Britain's banks "have changed their marketing to appear friendlier", Mr Packard said. But he warned that in Barclays' case the marketing may be "inconsistent with the reality" and that although the bank "has stuck to the letter of the law ... we can't help thinking the brand is being tarnished".
His comments follow the revelation that Barclays has stockpiled billions of pounds of "losses" to reduce future tax bills, despite not having made a loss at group level for over a decade. They also come shortly after the pledge by Bob Diamond, Barclays' chief executive, for "banks to be better citizens".
In 2010, Barclays generated £591m of so-called "deferred tax assets" by making about £2bn of losses in subsidiaries in the UK, US and Spain, despite reporting £6bn of pre-tax profits at group level. The bank has declined to disclose where the losses were incurred, though they are likely to have been in parts of its investment bank and foreign loan book.
The lender also reduced its corporate tax bill in 2010 by £365m to £1.52bn by using warehoused tax assets.
Although the practice is not uncommon, the scale at Barclays is striking. The European Banking Authority has estimated Barclays had €4bn (£3.3bn) of deferred tax assets last year, compared with €5bn at Royal Bank of Scotland, and €7.3bn at Lloyds Banking Group. But while RBS and Lloyds suffered record-breaking losses, Barclays always reported a profit.
The lender has run into controversy before over its tax affairs. Two years ago a whistleblower leaked documents which purported to show Barclays was using a network of subsidiaries in the Cayman Islands and Luxembourg to reduce its tax bill.
Earlier this year, Mr Diamond was forced to reveal the bank operated nearly 300 subsidiaries in tax havens and had paid just £113m of UK corporation tax in 2009.
Mr Packard said: "At Seymour Pierce we are rather sceptical of companies that operate in offshore tax havens, believing companies generate shareholder returns by performing services or making products their customers value, rather than through complicated financial structures."
Barclays stressed that it has signed up to the UK code of practice on tax, is entirely transparent with HM Revenue & Customs, and pays "all the tax due in all the countries we operate".