MERRILL LYNCH: US Sub-Prime Gambling Debts Paid for by British Tax Payer for the next 60 years.

 The US subprime market is a global event and threatens to undermine tax revenues of governments across the world.

Merrill Lynch has run up a $29bn loss from its collateralized debt obligations, which are backed, though not completely, by subprime mortgages. This debt has now been channeled through its UK subsidiary, Merrill Lynch International.

UK law allows such losses to be carried forward indefinitely, setting them against future profits. The Financial Times estimates that Merrill Lynch will be able to lower its UK tax bill by as much as $8bn.

Britain’s business taxes are lower than many Western countries. There are no state or city taxes so losses stay on the financial books for a much longer period of time.  If the bank maintains its 2006 profits it will not pay corporation tax in the UK for 60 years, according to the Financial Times

Mike Bloomberg, Mayor of New York has said many Wall Street firms would pay no taxes to the city this year.

Merrill Lynch is currently facing the threat of legal action from New York’s attorney general. Mr. Andrew Cuomo is putting pressure on the bank to buy back its auction rate securities because of an alleged misrepresentation of the financial instrument. Five US banks have already buckled under the intense scrutiny of regulators.    

UPDATE : Merrill Lynch pays $162 million in fines to New York city for misleading investors with their auction rate securities. As part of the agreement with Andrew Cuomo, New York’s attorney-general, the bank will buy back the debt instuments - estimated at $10 bn. 

©The Anglo American