- The UK’s Serious Fraud Office alleges that former Barclays CEO John Varley and other executives misled investors in raising funds during the financial crisis.
- Barclays executives spent frantic hours negotiating with Qatari investors, which led to millions in hidden fees being funnelled to the investors via financial instruments, a London court heard on Tuesday.
- The need to get Qatari investors on board was urgent for the executives, who feared a government bailout which would have been a “constraint,” SFO prosecutors said.
- One Barclays executive, Roger Jenkins, was got a £25 million bonus for his role in securing the Qatari funding, a draft agreement said.
- The defendants, including the bank’s former CEO John Varley and coworkers Jenkins, Thomas Kalaris, and Richard Boath, all pleaded not guilty to charges of misleading investors in the fundraising.
Barclays executives spent frantic hours negotiating with Qatari investors over the terms of funding for the crippled UK lender, amid fears that the Qataris would abandon the deal altogether, a London court heard Tuesday.
Serious Fraud Office (SFO) prosecutors claimed that the talks led to an agreement where millions in hidden fees were funnelled to Qatari investors via financial instruments called advisory services agreements, or ASAs.
The court also heard allegations that key executives, including then-CEO John Varley, knew about it. Court documents also showed that Barclays executive Roger Jenkins received a £25 million bonus for his role in securing funding.
Following the capital raising undertaken by Barclays in June 2008, a second arrangement was needed to meet new British government capital ratio requirements.
Barclays continued negotiations with Qatari investors that year. The court heard that those discussions centred on the fee the Qataris would be paid for their involvement amid fears that Qatar might be “walking” away from a deal, said Thomas Kalaris, then CEO of Barclays Wealth Management, on October 24, 2008, according to court documents.
The testimony came in week two of the case, in which the UK’s SFO alleges that Varley and the three other defendants, Richard Boath and his colleagues 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.
Millions as a “special award”
For his role in procuring the capital for Barclays, executive Jenkins – then executive chairman of investment management in the Middle East and North Africa – was set to receive a £25 million bonus as a “special award,” according to a draft agreement from March 19, 2009.
In an email on November 24, 2008, Jenkins had emailed Barclays executive Rich Ricci about his proposed bonus, saying: “We need to make a special payment for this endeavor now…Did it four times this year to save our arses and jobs guys, you know the sell !”
Qatari investors got a big discount, prosecutors say
The second capital raising agreement with Qatar led to a £280 million payment, in the form of an advisory services agreement (ASA), which disguised the fact that Barclays had provided a major discount to Qatari investors on their investment, according to prosecutors.
“The ASA therefore again acted as a disguised mechanism for providing extra fees to the Qataris in a way which the two defendants knew and intended would not be disclosed,” said SFO prosecutor, Edward Brown QC.
The prosecution also alleged that Jenkins, John Varley, the former CEO, knew the ASA was a commission fee for investing to meet the Qatari’s desired “blended share price” of 130 pence per share.
Barclays worried a government bailout would be a “source of constraint”
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 Brown told the court.
Barclays executives signed large capital raising agreements with the investors.
“The strategic investors would have a common commercial interest with Barclays, whereas the government would be a source of constraint,” the court heard from the minutes of a Barclays board meeting on October 26, 2008.
Barclays also paid Qatar a £66 million introductory fee for bringing Abu Dhabi Investment Authority for consideration as a strategic investor, the court heard.
The trial at Southwark Crown Court continues.