Page 27 - GoldenOne

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had gotten themselves into. It was Mercer that thought of a way.
And here, Mercer was better than he was at managing investments. He approached Deutsche Bank and Lloyds Bank, where they did their banking, and told these bankers that he through Medallion could help them save on income tax. Medallion could shift its tax-deductible losses to these banks, which could then use these losses to reduce their own taxable income.
The method devised by Mercer was simple: profits on share trades done by Deutsche Bank and Lloyds Bank would be attributed to Renaissance, an actual client of these banks, while losses would remain losses of each bank. So, the banks paid no income taxes on their profits, but could write off their losses fully. For this service, each bank would pay Renaissance a fee equal to slightly more than the low rate of tax payable on profits on long-term investments.
But the real gain to Renaissance was not this small fee. It was that now it could claim that it consistently had profitable trades. And the banks would not have to be informed that Renaissance did not have enough losses to cover all of the gains that the banks were attributing to them. Renaissance could deny tax liability on these gains, and carry on the resulting tax litigation for years, while not paying the income tax due on the profits from the trades.
Because of the large volume of trades done by these two large banks, Renaissance was able to make billions of dollars from this tax strategy, while being able to pretend that their computer trading programs were actually working very well.
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