Bank of America is routing billions of pounds of complex financial transactions through London rather than Dublin in a move that could reduce its tax bill.
The bank bought Merrill Lynch in the days after Lehman Brothers collapsed in September 2008, by which time it had emerged that Merrill had booked £13bn (€15bn) of losses on investments that turned toxic during the UK credit crunch. These losses can be carried forward and help companies reduce corporation tax.
The enlarged Bank of America looks likely to benefit from these deferred tax assets as it is beginning to book business previously conducted in Dublin – where corporation tax is 12pc – through London.
The UK is cutting its corporation tax to 21pc by April 2014, and the value of the tax assets from Merrill Lynch falls along with the phased-in cuts in corporation tax.
The arrangement is also thought to have been changed to appease Irish regulators who were worried about the potential liability for Irish taxpayers.
The Merrill Lynch operation, which is based in Dublin and started in 1995, is among 21 overseas-owned banks to have full Irish banking licences.
Bank of America chief executive Brian T Moynihan has spent three years cleaning up after his predecessor's takeover of Countrywide Financial and Merrill Lynch & Co, divesting more than $60bn (€45bn) of assets in the process.
MLIB had $591.6bn (€440bn) of assets at the end of 2011. That is almost three times the size of the country's biggest domestic lender Bank of Ireland Plc's €159.8bn balance sheet.
The plan may "be driven in part by internal tax considerations," said John Bruton, chairman of the International Financial Services Centre.
"Losses in the UK are more easily set off against profits in the UK." (Bloomberg)