Whatever Barclays, its executives, the states of Abu Dhabi and Qatar and Amanda Staveley did in 2008 — and those charged contest the allegations — it certainly was not the most sparkling of deals. The emergency capital raisings, which saw Barclays stave off UK state intervention by raising capital privately, first from the Qatar Investment Authority and Challenger, the investment vehicle of the Qatari prime minister, then from Sheikh Mansour of Abu Dhabi, won the bank plaudits at the time and saved British taxpayers some cash.
But with the deals leading to one whistleblower lawsuit, at least one regulatory investigation, suits and countersuits between Staveley’s firm and Barclays, and now a set of criminal charges it cannot be hailed still as a textbook bank rescue plan. Who did and said what to whom and when is not the province of GlobalCapital — our sister title Euromoney has an excellent report on the investment, based on original sourcing, right here — but suffice to say, the litigation does not make for good PR, with the criminal charges merely being the icing on the cake.
UK authorities, though, may not see it that way. Compared to the US, which has criminally charged at least two global banks and extracted billions of dollars in fines, though jailed very few bankers, the UK has been somewhat lacking in prosecutorial verve.
Only one criminal ‘bankster’ — the autistic Libor trader Tom Hayes, who furnished the SFO with everything it needed and ended up with 11 years for his trouble — has gone to jail since the crisis, for crimes against fictional numbers. Taking Fred “the Shred” Goodwin’s knighthood back after RBS’s fall may have been satisfying, but it did not defuse public anger about its bailout, rewards for failure or the public sector cuts subsequently imposed in the UK in the name of austerity.
That’s mainly because poor behaviour in finance falls far short of criminality. There are clear counterexamples — tax evasion or evading sanctions to fund the genocidal Sudanese government, for example — but even the new British offence of ‘reckless conduct in the management of a bank’ would have little force against a new ‘Fred the Shred’, though perhaps it could catch any re-run of Co-op Bank’s “Crystal Methodist” as chairman.
UK authorities, therefore, have to try pretty hard to find targets, and with Barclays described by at least one regulator as the “competent and evil” UK major, it is a good place to start.
One charge against the four bankers — John Varley, former chief executive; Roger Jenkins, former executive chairman of investment banking MENA; Thomas Kalaris, former CEO of Barclays wealth and IM; and Richard Boath, former European head of FIG — is about disclosure. The alleged frauds they have been charged them with refer to “advisory fees” associated with the capital raisings in June 2008 and October 2008. ( Boath is only charged with the former.)
These were abnormally high — and paid to the investors. Sheikh Mansour was paid a 4% fee for participating in the deal, as well as the 9.75% coupon on the £2.8bn ($3.55bn) of mandatory convertible notes that formed part of the capital raising, and, of course, the equity appreciation itself.
But it is hard to get too upset about that disclosure. Plenty of deals that Barclays does in other markets have opaque fee structures — nearly all of the non-core asset sales banks like to trumpet happen in such a way as to obscure true discounts or real economic loss. That’s not ideal (especially when some of the purchasers make a killing), but it does not make much difference to the overall equity story of the bank.
It is fair to say that, if you still liked Barclays equity in October 2008, with investment banks teetering all around you, even £100m or more of poorly disclosed fees would not have dissuaded you. It might be an issue for Qatari taxpayers (if there were any) and it is not exactly big news that Gulf rulers spend money on odd things from time to time.
Far bigger and more terrifying is the second charge, from which Boath is excluded.
This alleges that Barclays effectively lent Qatar the money to invest in the capital raise, through a $3bn loan to the Qatar ministry of finance in November 2008. The Companies Act of 1985, which was in force at the time, prohibits financial assistance for the acquisition of shares, with no way for public companies to structure their way around it.
If this is what happened, UK taxpayers could have been placed at risk and the economic substance of a trade concealed, at a time of great risk to banks worldwide.
Whatever the result of any court cases to come, they will have little implication for banking today. It is inconceivable today that a regulator would nod through a rescue package of this size without information about where the money ultimately came from and few bankers would try to pull a fast one when a deal is under such scrutiny. The authorities though may finally put some banker heads on their dusty spikes.