RegulationJan 23 2019

Barclays execs accused of secret Qatar funding

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Barclays execs accused of secret Qatar funding

A former Barclays chief executive and three senior bank executives avoided a taxpayer bailout at the height of the financial crisis by getting billions of pounds of secret funding from Qatar, a court heard.

Ex-chief executive John Varley, 62, and former colleagues – Roger Jenkins, 63, Tom Kalaris, 63, and 60-year-old Richard Boath – allegedly raised £11.8bn in emergency fundraising in 2008.

The deal was the subject of a five-year investigation by the Serious Fraud Office.

Prosecutors allege the defendants knowingly hid the eye-watering fees in order avoid looking weak and triggering a loss of confidence in the bank.

The four all deny conspiracy to commit fraud by false representation in relation to the emergency fundraising which allowed Barclays to avoid direct governmental intervention.

Investors who contributed include Qatar Holdings, an arm of the Gulf state's sovereign wealth fund.

Prosecutor Ed Brown QC told jurors: "The backdrop of the case is the global financial crisis of 2008.

"At that time, most of you will remember, there was a very significant banking crisis in the United Kingdom, the United States and many other parts of the world.

"John Varley was at that time the Barclays Group chief executive. Roger Jenkins was Barclays Capital, or “Bar Cap”,  executive chairman of Investment Management in Midland East and North Africa.

"Thomas Kalaris was Barclays' Wealth Management chief executive officer and Richard Boath was “Bar Cap” head of European Financial Institutions Group.

"The other conspirator, say the Crown, that you will hear about is Christopher Lucas, who is known by everyone as Chris, who was at the time Barclays Group financial director."

The prosecutor explained Mr Lucas had a long running illness and was unable to stand trial.

Mr Brown continues, adding that by summer 2008, Barclays were under extreme pressure to raise capital to avoid illiquidity and by that same autumn, the government was imposing such capital requirements.

The prosecutor added: "Those at the top of Barclays were very anxious to avoid accepting government money, thereby placing itself under greater government control and scrutiny.

"Now it is no exaggeration to say that Barclays' future as an independent bank was in jeopardy in September and October of 2008."

The jury heard how the bank began a round of capital raising to avoid the possibility of a state-funded bailout.

"The overall figures involved are very considerable indeed as you might expect. In June 2008, the capital raising undertaken by Barclays secured £4.4bn.

"In October 2008, when further shoring up of Barclays' capital ratios was imposed upon it, it raised a total of £6.8bn.

"As we shall see, during these capital raisings the Qataris, in particular through the Qatar Investment authority and Qatar holdings, the Qataris made what were very substantial investments in Barclays to shore up their capital base.

"Approximately £1.9bn in June 2008 and £2.05bn in November 2008.

"The Qatari money was essential. Those within the bank at that time commented that without it the consequences would be dire – for the bank and personally."

The prosecution told how Barclays had legal obligation to disclose such fundraising to investors and the wider market.

One of the key document that must be published is called a 'prospectus', explained the prosecutor, adding that it contained within it who was investing and how much Barclays would pay for that investment.

"The publication of this information is a legal requirement," explained Mr Brown, adding that such disclosure must be honest and accurate.

"It ensures that there is transparency and that existing investors, prospective investors and the wider market are properly informed about what has happened.

"All experienced bankers know about the fundamental principles attaching to the contents of such public-facing documents, not least that they must contain the truth and must not mislead.

"In this case, in addition to the amounts which Barclays revealed that it was paying to the investors in the public-facing documents, additional commission fees for investing were paid to the Qataris, say the Crown, additional commission fees for investing that were not paid to other investors and were not revealed.

"It is the hiding of these additional commission fees which lies at the heart of this case and the conspiracies alleged against the defendants.

"Disguising and hiding extra fees to the tune, ultimately, of a total of nearly a third of a billion pounds."

Mr Brown told the jury that Barclays failed to disclose an additional £322m paid to the Qataris for investments.

For the capital raising in June 2008, the Qataris were paid an additional £42m in commission fees and by the end of October, during the second round of capital raising, they were paid a further fee of £280m.

"Those fees, £42m and £280m, were not revealed to the other investors.

"Parts of the documents published by Barclays were untrue and misleading," explained Mr Brown.

The court heard how Barclays had instead hidden the fees in 'Advisory Service Agreements', which falsely claimed that the Qataris were providing 'advisory services', in return for the multi-million pound fees.

"The evidence in this case shows why the ASAs, the Advisory Services Agreements, came into existence," explained Mr Brown, adding, "they were devised, say the Crown, by the conspirators as a mechanism for paying the Qataris greater fees than those paid to other investors, so as not to reveal the true position.

"They were therefore a disguise say the Crown.

"Against the background of the financial crisis, it was essential that Barclays secured the investment of the Qataris.

"The defendants in this case, and others at Barclays of course, knew that all too well.

"The evidence demonstrates that the Qataris drove a hard bargain for their investments."

Mr Brown told jurors that in June 2008, the sovereign wealth fund demanded a starting commission fees of 3.75 per cent on the agreed investments.

"This was not the percentage, or anywhere close to it, which Barclays was to pay other the investors – it was over double."

In October, Barclays needed to pay the Qataris an extra £280m, which they knew would have to be divulged in public documents.

"There were a number of reasons why it was necessary to hide the true position including the most obvious and most immediate of which was that the other investors would have demanded to be paid the same commission rate, as was the rule so to speak."

Mr Brown told the jury that there was also concerns that if the information became public then confidence in the bank would collapse.

"If Barclays was seen to be so weak and vulnerable that it needed to pay substantial fees to investors, then a private capital raising may not succeed at all because other investors would have become concerned about that apparent weakness.

"Alternatively, the price that they would have to pay to other investors - at the same rate - would be prohibitive, and itself of course showing weakness."

The prosecutor told how the defendants believed that the only way to avoid a loss of confidence or a hike in investor rates was to make false representation in public facing documents.

"The position presented was that the Qataris were being paid at the same commission rate as every other investor, as was the obligation.

"That was not true, say the Crown, and the conspirators all knew it to be a lie."

Mr Brown explained that the advisory agreements were merely a fig leaf for paying the Qataris the agreed commission without market scrutiny.

Mr Varley was chief executive of Barclays until the end of 2010. Mr Jenkins left Barclays in 2009 and is now based in Malibu, California.

Mr Kalaris, a London-based US citizen, ran the wealth management arm of Barclays while Mr Boath was in charge of the bank's European financial institutions group.

Mr Varley, of Notting Hill, Mr Jenkins, of Malibu, California, Mr Kalaris, of Knightsbridge, and Mr Boath, of Henley-on-Thames, Oxfordshire, deny fraud by false representation, between 1 May 2008 and 31 August 2008.

The charge alleges they conspired together 'to commit fraud by making a false representation, namely within documents relating to Barclays' capital raising of June 2008, intending to make a gain, namely or cause loss to another, or exposing another to a risk of loss.'

Mr Varley and Mr Jenkins deny a second like charge of fraud by false representation, between 1 September 2008 and 30 November 2008.

The charge alleges they conspired together 'to commit fraud by making a false representation, namely within documents relating to Barclays' capital raising of October 2008, intending to make a gain, namely or cause loss to another, or exposing another to a risk of loss'.

The trial continues.