Thomson Reuters
- A Barclays executive said that a complex deal with Qatar designed to rescue the bank during the 2008 financial crisis was "a nightmare," in conversations repeated at trial in London.
- When former bank executives realised that Qatari investors could end up with a higher shareholding than previously expected, plus seats on the board, one banker said: "we're fucked."
- Executives were also worried about the possibility of Barclays being taken over by the government because that would have put their large compensation packages at risk.
- The defendants, including the bank's former CEO John Varley and coworkers Roger Jenkins, Thomas Kalaris, and Richard Boath, all pleaded not guilty to charges of misleading investors in the fundraising.
Barclays executives became anxious in the summer of the financial crisis of 2008 as they struggled to put together a capital-raising deal with Qatari investors that would rescue the bank, a prosecutor told a London court today.
The bank's senior managers were trying to raise new investor funding in order to prevent Barclays from being taken over by the government or - in a worst-case scenario - succumbing to the liquidity crisis that bankrupted several US and European banks. At the time, Lehman Brothers was just weeks from insolvency.
So the Barclays execs approached a group of Qatari sovereign wealth investors, offering them equity in the bank in return for a large injection of cash, prosecutor Ed Brown told the court.
The executives, particularly the former head of Barclays' European financial-institutions group Richard Boath, were wary of how the capital-raising activity would impact their overall holding in the bank.
In one scenario of the deal, the possibility that the Qataris could own up to 10% of the British lender would be a "nightmare," prosecutors allege Boath said. They feared that the new investors, including Sheikh Hamad, the former Prime Minister of Qatar, could end up with a number of board seats as a result, the court heard. Boath suggested that if that came to pass, "we're fucked," prosecutors allege he told his colleagues:
"We're fucked, we're fucked," Boath told the former executive chairman of investment management for MENA at Barclays Capital, Roger Jenkins, in a phonecall on July 16, prosecutors said. "It's a fucking nightmare. Is he going to settle?"
"Yeah, he'll settle," Roger Jenkins said, referring to the amount the Qataris would pay.
"Has he got the cash?" Boath said.
"We're just working that through now," Jenkins said.
The testimony came in week two of the case, in which the UK's Serious Fraud Office alleges that then-CEO John Varley and the three other defendants, Boath and his colleagues Thomas Kalaris and Jenkins, misled investors in fundraisings during the financial crisis by paying Qatari companies £322 million ($423 million) - a 3.25% commission - in secret fees that were not properly disclosed.
The defendants pleaded not guilty to all charges.
The court also heard that Qatar Holding sent four invoices to Barclays for advisory services fees shortly after the signing of the documentation. The prosecution alleges that the short timeframe demonstrates that the advisory service agreements were not genuine agreements.
Subsequently, the Qataris ended up with a large shareholding in Barclays. A "clawback" arrangement gave other shareholders the option to purchase chunks of the Qataris' stake. But because few of those shares were bought, the £322 million commission fee represented a smaller percentage return on the Qataris' investment than expected.
"You'll end up paying VAT on top, which would be awful"
In conversations during the same period between Boath and senior Barclays lawyer Julie Shepherd, the issue of paying value-added tax (VAT) on the service agreements to be signed with Qatar was raised. There was a wariness, according to the prosecution, that if the services to be provided under the terms of the agreement weren't clear then Barclays could be forced to pay VAT on top of the payment.
This possibility was described as "awful" by Shepherd during the call on July 16, 2008, because VAT at the time stood at 17.5%.
All of these conversations took place prior to the finalization of Barclays' capital raising which saw the bank collect £7 billion from Qatari investors in the form of Reserve Capital Instruments (RCIs) and Mandatorily Convertible Notes (MCNs).
The Qatar deal was allegedly intended to financially stabilise the bank. Executives were concerned at the prospect that they could find themselves without jobs if it became necessary for the British government to take over the bank, as it did with Northern Rock and Lloyds.
This was particularly clear because of the comparatively high levels of compensation enjoyed by the Barclays executives in question.
Jenkins said, "At 2 o'clock in the morning I was panicking that we were about to get nationalised and you guys must have been the same because the government would, wouldn't look kindly on compensation over a million dollars," Brown told the court. According to records read to the court by the prosecution, all four defendants were paid more than $1 million in both 2007 and 2008.
The trial at Southwark Crown Court is ongoing.