Maybe I'm being a bit harsh with that title, but if you've read previous columns of mine on Bank of America Corp (NYSE:BAC) you'll know I'm no fan of the bank as a general investment: More than four years on from the financial crash, I think it remains too big, too diverse, and too unwieldy for average investors -- like myself -- to get their heads around.
And I'm still not convinced the last crisis-related shoe has dropped for the superbank, let alone LIBOR-related fines and/or suits -- the other financial time bombs out there just ticking away, waiting to go off for many of the world's big banks. But CEO Brian Moynihan and company have just managed to impress me with a savvy move that has the potential to be win-win-win scenario for Bank of America Corp (NYSE:BAC), the U.K., and the Republic of Ireland.
The investment that shall not be named Financial Times is reporting that B of A will be moving $50 billion of its derivatives business out of Ireland and into MLIB, the London-based subsidiary that came along with Merrill Lynch, which B of A bought in the darkest days of the financial crash.
$50 billion is big chunk of change, especially for a country like Ireland. Having all of those exotic investments there in the Dublin office was making the Irish government nervous: fearful for potential fallout for Irish taxpayers.
After the drubbing the country took from a real-estate crash that rivaled America's, and the years of punishing austerity it's taken to bring the Irish economy back from the dead, the mere mention of the word "derivatives" -- variations of which played a large role in the financial crisis -- is probably enough to send any Irish politician running for the country's lovely green hills.
The U.K. is happy about the move because B of A's base of operations is in London, and regulators wanted that big book of derivatives business physically closer to home, where they could keep a better eye on it.
Celtic Tiger vs. British Bulldog So that's the win-win part of the story for Ireland and the U.K. What about the win for Bank of America Corp (NYSE:BAC)?
B of A kept that $50 billion in derivatives in Dublin for a simple reason: lower corporate income taxes. Remember the Celtic Tiger? Part of the go-go 90s, when seemingly every company on the planet wanted to relocate to Ireland because of the tremendous tax breaks the government was offering? Taxes are still low there , but corporate income taxes have also come down in the U.K., and are scheduled to go lower in April: down to 23%.
In addition, according to Financial Times, there's approximately $8 billion of deferred tax assets waiting for B of A to use in the U.K., which the bank can potentially use to reduce its corporate tax bill further, or possibly even eliminate it.
Howling masses, happy investors One slight danger with this ingeniously tax-advantageous move is the current hostile mood of the British people and its politicians to transnational corporations and the taxes they pay.
The self-induced, austerity-beset U.K. is hunting left and right for ways to fill government coffers, and has of late turned to breaking down the doors of companies like Starbucks Corporation (NASDAQ:SBUX) and Goldman Sachs Group, Inc. (NYSE:GS) in order to do it. In Goldman's case, it recently had to renounce plans to defer paying out bonuses to its London-based employees because there was such a governmental uproar over it.