Why BarCap WON'T be moving to the US
Jean Paul Crutchley and Alastair Ryan at UBS think BarCap should move to the US. Alphaville picked up on this yesterday, pointing to Crutchley and Ryan's rationale that Barclays' size and inability to offer a decent return to shareholders make relocation all but inevitable.
The push factors
Largeness: The UBS report focuses on the fact that BarCap's balance sheet amounts to 100% of UK GDP, making it too big for the UK.
Disgruntled shareholders: Crutchley also points to the UK's comparatively strict capital rules, making it difficult for Barclays to offer a decent return to shareholders. While the bank's 231 code staff received 554m in 2010 to prevent them being poached by international competitors, all shareholders received a dividend of just 653m.
Subsidiarisation: When the Independent Banking Commission publishes its report in a fortnight's time, there's also the danger that it will recommend subsidiarisation. It's been estimated that this could cost BarCap an extra 5-10bn a year in funding costs.
The pull factors
However, despite Crutchley's report, and BarCap's threats, it has big reasons to stay in the UK. These include the following:
Most of its staff are British: 70% no less. Replacing them will be expensive.
Tax credits: Barclays has 2.5bn of deferred tax assets from losses in the UK, the US and Spain. For a business making 11.9bn in profits annually, this may not sound like a big deal. And yet, Barcap is somehow working the UK system to its advantage: last year it paid just 113m of UK corporation tax. Senior BarCap bankers tell us the UK deferred tax assets are a major reason for sticking around.
The US is no panacea for Barclays' problems: Most of all, however, a move to the US won't solve BarCap's woes. In the US, Dodd Frank as a whole and the Volcker Rule specifically are obliging banks to restructure trading businesses. JPMorgan has estimated that Goldman could lose more than 40% of its trading revenues as a result.
Overall, we think Barclays won't move. The bank is being tight-lipped on the subject and has declined to comment. Maybe we're just being optimistic. Hopefully we're not.
