Bank of America Moves $50 Billion of Derivatives to UK

Getty Images

Bank of America

Bank of America has begun moving more than $50bn of derivatives business out of its Dublin-based operation and into its UK subsidiary, according to people close to the operation.

The move, part of the group's global drive to rationalize its operations, has been encouraged by regulators but will also allow BofA to benefit from tax breaks stemming from the accumulated losses in its UK business.

Bank of America, the world's number 10 bank by assets, is currently one of the biggest banks in Ireland. Although its domestic Irish operations are small, it has traditionally routed a large chunk of its European operations – corporate lending and cash management as well as the derivatives book – through the Dublin subsidiary. BofA inherited the operation, MLIB, when it acquired Merrill Lynch at the height of the financial crisis.

But bankers said Irish officials had made it clear they were uncomfortable with such a large book of business being Dublin-based, theoretically posing a risk to Irish taxpayers. At the same time UK regulators were keen to have closer control of Bank of America's European business, whose operational management is in London.

In the boom years many banks flocked to low-tax Ireland, routing Europe-wide business through Dublin. That tax advantage is now diminishing, as the UK cuts its corporate tax rate, with a further reduction to 23 per cent due in April.

The process of moving the assets, which requires further regulatory approval and the amendment of client contracts, is expected to take at least until the end of 2013. It will be most tax-efficient before April 5 because the value of the tax losses in the UK business will diminish in line with the falling corporate tax rate.

More From The FT:

BofA Names Two New Board Members

BofA Earnings Hit by Mortgage Settlement

Wrangles Continue Over Bank Failure Plans

According to its most recent disclosures, the bank is sitting on more than $8bn of so-called deferred tax assets in the UK, against which it can offset profits to reduce or eliminate its corporate tax bill.

There is added time pressure on the bank to use up its DTAs because their eligibility as core capital will be eliminated by the incoming Basel III capital rules.

Bankers said the move was also driven by the global process of simplifying BofA's structure, which has got under way in earnest over the past year, as the group has gradually been putting its legacy troubles behind it, focusing increasingly on making its ongoing operations more efficient.

Colleagues say Brian Moynihan, the BofA chief executive who some had expected to be squeezed out of his job at various junctures over the past two years – is now looking far more comfortable and confident in his role.

BofA will retain its corporate banking and cash management operation in Ireland.