Barclays Brought Before The Bench

The UKhas brought criminal charges against Barclays and four former executives over deals made with Qatar in the depths of the 2008 financial crisis.

John Varley

This is the first time that a bank or such senior executives have faced criminal charges relating to actions taken during the financial crisis. To date, Barclays stands accused of three counts—conspiracy to defraud, false representation and unlawful financial assistance—though further charges are possible.

The court hearings, beginning in July, will focus on how Barclays raised nearly £12 billion ($15.3 billion) of new capital, including £6.1 billion from Qatar’s sovereign fund and investment vehicles of then prime minister Sheikh Hamad bin Jassem bin Jabor al Thani.

Key questions are whether the British bank’s only partially disclosed payments of £322 million in a so-called “advisory service agreement” constituted an inducement to invest, and whether a $3 billion loan to Qatar’s Ministry of Finance was, in effect, the bank lending so that its own shares could be purchased—an illegal transaction.

The criminal case raises the prospect of further civil cases against Barclays, and of reputational damage to Qatar, which already is subject to blockade by its GCC neighbors for its support of radical Islamism and being too cozy with Iran.

The reasons why Barclays went to mainly Middle Eastern investors for new capital will also be scrutinized. Paul (now Lord) Myners, the government minister responsible for City affairs at the time, says Barclays executives “said that they thought it would be damaging to their business in terms of clients’ confidence to have the UK government as a significant shareholder.”

He questions the assumption that this would be of greater concern for an investment bank like Barclays, pointing out that “Royal Bank of Scotland at this stage had a substantial investment bank,” and says a more powerful motive was “the recognition that there would be limitations imposed on the bonuses they could pay in the future.” While Barclays raised £12 billion in 2008, it has paid out an estimated £18 billion in bonuses since then.

“It was not a great deal for Barclays shareholders, who suffered significant erosion in earnings and book value,” Myners says.