Barclays Bank – and four former senior executives – are facing fraud charges dating back to 2008. What happened? And did bankers have it coming to them?
Cast your mind back to September 2008: Katy Perry is at No. 1 with I Kissed a Girl. The rather-less-glamorous Gordon Brown is Prime Minister and the 2008/9 Premier League season – featuring Portsmouth, Wigan and Bolton, no less – is into its second month.
Meanwhile, over in the United States the government has taken the decision not to rescue Lehmann Brothers, forcing the bank – founded in 1850 and the fourth largest investment bank in the country – to file for bankruptcy.
That move triggered a global banking crisis. Shares in other US banks plummeted and the effects were felt around the world. The Republic of Ireland went into a deep recession, three Icelandic banks collapsed and in the UK the government took the decision to rescue Lloyds and the Royal Bank of Scotland.
Barclays Bank, however, did not need rescuing. At the time the assumption was that Barclays had a strong balance sheet and the financial strength to ride out the global crisis. As we now know, Barclays Bank did need rescuing – but, fearful of coming under the control of a Labour government, it chose to be ‘rescued’ in an entirely different way.
Now, after a five-year investigation and questioning 44 people, the Serious Fraud Office (SFO) has charged Barclays Bank and four senior executives with fraud over their actions in that rescue. The case relates to billions of pounds Barclays raised from Qatari investors – which enabled the Bank to avoid a government bailout.
What did Barclays Bank do?
When the financial crisis hit Barclays clearly needed extra cash – as did Lloyds and RBS, who got that cash from the government with the government then taking a controlling stake in those banks. Looking back to a Guardian report of 2008, the government pumped £20bn into RBS, taking a controlling 60% stake and £17bn into Lloyds. As the Guardian reports, Gordon Brown was also expecting a cash call from Barclays but it never came. Instead – panicking about ‘virtual nationalisation’ – it now transpires that Barclays went and knocked on the door of Qatar Holdings.
Who are Qatar Holdings?
Once a British protectorate, Qatar become independent in 1971. It is a country on the northeastern coast of the Arabian Peninsula. It is roughly 1/20th of the size of the UK – virtually the same size as Yorkshire – but has the world’s third-largest natural gas and oil reserves, giving it the highest per-capita income in the world. Famously – and controversially – it will host the 2022 World Cup.
The Qatar Investment Authority (QIA) is Qatar’s state-owned holding company – essentially its national wealth fund – and controls assets worth $335bn, including Harrods and a significant stake in Volkswagen. A subsidiary of QIA is Qatar Holdings, established in 2006 and described – rather tautologically – as ‘a private equity firm specialising in private and direct investments in strategic private and public equity.’
So how did they help Barclays?
Simply put, they apparently lent Barclays the money they would otherwise have needed from the Government. However, it appears not to have been a straightforward loan. According to the BBC analysis, the ensuing ‘money-go-round’ went as follows:
- Qatar Holdings lent Barclays Bank £12bn
- Barclays paid Qatar Holdings £332m for ‘advisory services’
- And Barclays loaned £2.3bn back to Qatar Holdings, allegedly to buy Barclays shares (which would have propped up the share price)
What are the charges?
The bank and four senior executives, including former chief executive John Varley, are facing criminal charges, specifically conspiracy to commit fraud in relation to the capital raising exercise in 2008. In addition, John Varley and former senior investment banker Roger Jenkins have been charged with providing ‘unlawful financial assistance.’ All the defendants have said that they will vigorously defend the charges.
It appears that the conspiracy to commit fraud relates to the advisory fees paid to Qatar Holdings – after all, £332m must have paid for an awful lot of ‘advice’ – but the second charge of unlawful assistance could be much more serious. While I am not a lawyer, the implication must be that Barclays was giving back some of the money which was supposedly bailing out the bank, so that the money – £2.3bn – could be used to prop up the bank’s share price.
Have there always been suspicions about this capital raising exercise?
Yes, is the short answer to that question. At the time no-one wanted to lend to banks, and yet here was Barclays obtaining a £12bn loan. Lord Myners, formerly Gordon Brown’s Financial Services Secretary to the Treasury, has spoken of Treasury officials being “baffled” as to how Barclays obtained the loan. Right now there are many unanswered questions: did the Barclays executives have pay and remuneration packages linked to performance, which would have been jeopardised by a Government bailout? Were they prepared to break the law to avoid what they saw as nationalisation? And, in the atmosphere which prevailed in the 2008 banking sector, did they simply believe they could get away with anything?
We simply do not know: but all those questions will be answered in court. And with Barclays also facing a civil action relating to the capital raising and an investigation from the Financial Conduct Authority, the present management of the bank must be very, very worried.
Didn’t the bankers have it coming?
Many people will find it difficult to feel any sympathy for banks and bankers. ‘About time too, they had it coming’ will be a widely felt response – especially from people who have been stung by overdraft charges and feel that the banks have long been looking to recoup the losses and profligacy of 2008 through charges levied on ordinary customers.
To take one simple example, last summer consumer group Which? published a report comparing the cost of borrowing £100 from a payday loan company with the same amount ‘borrowed’ via an unauthorised overdraft. All the high street banks were significantly more expensive than the maximum amount of interest that could be paid on a payday loan. And which of us hasn’t felt ‘ripped off’ by our bank at some point in our life? It is safe to assume that Barclays’ current management may be having sleepless nights over the trial of the ‘Barclays Four:’ it is equally safe to assume that angry and overcharged customers won’t be…