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StanChart and HSBC escape British tax move

Embattled lenders largely unaffected as the UK seeks to limit claims for deferred tax assets

Don Weinland

HSBC Holdings and Standard Chartered will largely escape new measures from the British government that will raise up to US$6.3 billion in additional taxes levied on the country's banking industry, a rare piece of good news for the two embattled lenders that have seen compliance costs soar and profits plummet this year.

British Chancellor of the Exchequer George Osborne said on Wednesday that he would limit tax relief banks could claim from past losses starting in April next year, a move that would raise about £4 billion (HK$48.6 billion) more in tax from banks over the next five years.

The chancellor said the current system allowed banks to offset losses from the financial crisis with tax claims for up to 20 years.

"That is totally unacceptable," Osborne said. "The banks got public support in the crisis and they should now support the public in the recovery."

HSBC and Standard Chartered had a low level of tax assets in Britain that were deferred from the crisis and therefore would see only a small increase in tax.

"Standard Chartered and HSBC never really had a lost year, so that's probably why they're not too affected by this," said Jim Antos, a banking analyst at Mizuho Securities Asia in Hong Kong.

In its annual report last year, HSBC said projections for future taxable income in Britain were "insufficient to enable recognition of deferred tax assets".

Standard Chartered had US$173 million in deferred tax assets relating to losses in Britain, according to its last annual report.

The low level of deferred British taxes at the two banks was an exception among large lenders in the country, however. Lloyds Banking Group had about £5 billion of deferred tax assets, the highest among British banks, according to Reuters. Royal Bank of Scotland has about £3 billion while Barclays has £4 billion.

Already struggling to maintain profitability, HSBC and Standard Chartered have been nailed with fines for regulatory violations this year.

HSBC's provisions for the third quarter totalled US$1.69 billion, a 115 per cent surge year on year. Pre-tax profit climbed 2 per cent to US$4.61 billion from the same period last year, but underlying profit before tax declined 12 per cent to US$4.41 billion.

Impairment losses on loans and advances at Standard Chartered climbed 86 per cent to US$536 million in the third quarter, while operating profit sank 19 per cent year on year.

This article appeared in the South China Morning Post print edition as: StanChart and HSBC escape British tax move
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