Barclays charged by Serious Fraud Office over 2008 Qatar deal

Barclays and four former executives have been charged by the Serious Fraud Office with conspiracy to commit fraud and the provision of unlawful financial assistance over the bank's emergency fundraising deal with Qatar at the height of the financial crisis.

The SFO, which has been investigating the bank since 2012, said the criminal charges relate to Barclays’s capital raising arrangements with Qatar Holding LLC and Challenger Universal Ltd in June and October 2008, and a $3bn loan facility made available to the State of Qatar in November 2008.

In the summer of 2008, just a few months before US investment bank Lehman Brothers went under, Barclays successfully raised £4.5bn of capital, followed by a further £7.3bn just a few months afterwards from various investors including Qatar Holding, which allowed it to avoid having to go cap-in-hand to the taxpayer as rivals Lloyds and RBS were forced to do.

According to separate court documents, Barclays then loaned back funds to the state of Qatar just weeks after announcing the fundraising deal was of the same amount as the debt component of the Qatar Holding’s investment.

Under the Companies Act 1985, it is unlawful for a bank to lend itself money — the legal term for which is financial assistance.

Although not initially disclosed until after the capital was raised, Barclays subsequently revealed that it paid about £322m in "commission payments" to Qatari investors, which was argued by analysts be an overly generous encouragement for hugely rich investors to buy debt that was paying a very generous 14% rate of interest until June 2019.

EX-CEO VARLEY AND 'RAINMAKER' JENKINS CHARGED

On Tuesday, the SFO said it was bringing the charge of unlawful financial assistance against parent holding company Barclays Plc, former group chief executive John Varley and Roger Jenkins, former executive chairman of the bank's investment banking and investment management arm in the Middle East and North Africa, Barclays Capital.

Barclays Plc, Varley and Jenkins were also charged with conspiracy to commit fraud by false representation over the October 2008 fundraising.

Over the charge of conspiracy to commit fraud by false representation for the June 2008 fundraising, the SFO charged the same three parties as well as Thomas Kalaris, ex Barclays Wealth and Investment Management CEO, and Richard Boath, the bank's former European head of financial institutions.

The defendants will appear before Westminster Magistrates’ Court at 1400 BST on 3 July 2017. Varley, Kalaris and Boath all still live in London, while former 'rainmaker' Jenkins resides in Malibu, California.

The bank, which has previously denies wrongdoing and is contesting all the cases, on Tuesday said it "is considering its position in relation to these developments".

Barclays said it awaited further details of the charges from the SFO, noting it has been informed by the SFO "that it has not made a decision as to whether it will also bring charges against Barclays Bank Plc in respect of the loan".

FURTHER POSSIBLE CHARGES WAITING IN WINGS

The US Department of Justice and Securities and Exchange Commission have also been probing the Qatari deals, with UK regulator the Financial Conduct Authority investigating the advisory services agreements. In 2013 the FCA said it would fine Barclays £50m over the matter, but the probe was deferred and has since been reopened.

A civil claim has been served on Barclays Bank Plc by PCP Capital Partners LLP and PCP International Finance Limited in relation to the November 2008 capital raising, which Barclays Bank Plc is defending.

As criminal charges from the SFO have been directed at Barclays Plc, the bank's holding company, this could insulate the bank from any risk that it would face restrictions on handling government bond sales.

Jenkins' lawyer said his client will “vigorously defend against these charges" and that Jenkins has "received both internal and external legal advice on each and every subject mentioned in the accusations leveled by the SFO today", Bloomberg reported.

Barclays shares were down 0.2% by mid-morning on Tuesday, having fallen almost 8% in the year to date.

'MANY SKELETONS JUMPING OUT AT ONCE'

These are the first criminal charges laid at the door of the very top bank executives relating to activities during the financial crisis, said analyst Laith Khalaf at Hargreaves Lansdown.

"The SFO hasn’t pulled any punches, and Barclays now finds itself facing yet another regulatory battle. The bank is already facing litigation from the US Department of Justice and an FCA investigation into its current boss, Jes Staley, for trying to uncover the identity of a whistleblower.

"Skeletons seem to be jumping out of lots of closets at once for Barclays."

Khalaf said the spectacle of former executives being paraded through court will do nothing to strengthen the credentials of the bank, as it continues to try to execute its turnaround plan.

"However the muted reaction in the share price highlights the fact that the SFO action was largely priced in, and more widely reflects the 'misconduct discount' which applies to the banking sector. Litigation, fines and compensation payments have sadly become part and parcel of the banking world, and while many of the alleged offences took place a long time ago, the costs and reputational damage are still very much a live issue."

Investec analyst Ian Gordon recalled that Barclays’ £7bn November 2008 “emergency” fundraising was considered controversial at the time, primarily because of the associated subrogation of shareholders’ pre-emption rights.

He said the deal was also seen by many as "expensive", including £3bn of 10-year reserve capital instruments (RCIs) with a 14% annual coupon, accompanied by dilutive five-year warrants with an excise price of 197.775p as well as generous "commission payments".

The warrants were subsequently exercised, crystallising material gains for Barclays’ Middle Eastern investors, while the drag to earnings from the coupons on the RCIs continues until 2019, Gordon observed.

"Barclays’ 'largesse' seemingly reflected an urgency to bolster its capital position (by early 2009) in order to meet FCA requirements and thereby avoid possible conscription into the UK Government’s costly Asset Protection Scheme which charged Lloyds and RBS £2.5bn each for “catastrophe insurance” which ultimately proved “unnecessary”, i.e. it did not pay out."

Given litigation uncertainties, with Barclays yet to see an indictment or statement of facts, Gordon said he currently assumed that no provision can reasonably be assessed and "suspect that this saga could run for years", but kept his recommendation on the shares at 'buy'.