(The authors are Reuters Breakingviews columnists. The opinions expressed are their own)
By Una Galani and George Hay
DUBAI/LONDON, Aug 2 (Reuters Breakingviews) - Barclays’ (BARC.L) Qatari baggage is getting heavier. A costly capital injection by Gulf funds spared the UK bank from a state bailout in 2008. But if a probe by the UK’s Financial Services Authority into the disclosure of fees discredits one of the few remaining members of Barclays’ top executive team, the bank’s decision to seek salvation in the Middle East will look even more like a Faustian pact.
The fallout from the interest rate-rigging scandal has already cost Barclays its chairman, chief executive, and chief operating officer. Now finance director Chris Lucas, along with former executive Roger Jenkins, are at the centre of the probe, which relates to the bank's capital raisings in June and October 2008.
The central question surrounds fees that Barclays may have paid Qatar’s sovereign fund in return for advising the bank’s Middle East business. The mandate was first disclosed when Barclays raised 4.5 billion pounds from investors including Qatar in June 2008. At the time, however, there was no suggestion that Barclays was paying for these services.
Compare that with October 2008, when Barclays announced plans to raise a further 7.3 billion pounds, mostly from Gulf investors - an exercise that cost it a chunky 300 million pounds in fees. On that occasion, Barclays said it had paid Qatar Holding 66 million pounds for “having arranged certain of the subscriptions” in the fundraising. Barclays says it believes it met its disclosure obligations. But if the FSA disagrees, Lucas will be in a difficult position.
Barclays shareholders never liked the Gulf deal, which they saw as expensive and riding roughshod over their pre-emption rights. The advisory tie up with Qatar also doesn't appear to have given the bank’s Middle East business much of a boost.
Barclays has consistently argued that it had few alternative sources of capital at the height of the crisis, and that Gulf funds were preferable to the UK state capital that was forced on both Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L). Constant government meddling suggested that Barclays had made the right choice. But following the latest scandal, some investors may be wondering if the bank would have been better off accepting a bailout.
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- Barclays said on July 27 that it is at the centre of a probe by the UK Financial Services Authority over its disclosure in relation to “fees payable under certain commercial agreements and whether these may have related to the bank’s capital raisings in June and November 2008”.
- The British bank, which said that it considers it has met its disclosure obligations, added that the investigation involves four current and former senior employees, including Chris Lucas, group finance director. Former Barclays executive Roger Jenkins is also under investigation, according to a person familiar with the matter.
- The British bank said on June 25, 2008 that it had “entered into an agreement for the provision of advisory services by Qatar Investment Authority to Barclays in the Middle East and agreed to explore opportunities for a co-operative business relationship with SMBC [Japan's Sumitomo Corporation]”.
- The disclosure was made as part of the bank’s announcement that it had raised 4.5 billion pounds from investors including the Qatar Investment Authority (QIA) and Challenger, a vehicle beneficially owned by Qatar’s prime minister. - On Oct 31, 2008, Barclays announced plans to raise a further 7.3 billion pounds from investors led by Qatar Holding, Challenger, and Abu Dhabi’s Sheikh Mansour. The bank said the fees relating to the transaction amounted to 300 million pounds.
- As part of the fees, Barclays said that Qatar Holding would be paid 66 million pounds “for having arranged certain of the subscriptions in the capital raising” without providing further detail.
- Announcement, July 27: tinyurl.com/bttggdv
- Capital raising June 25, 2008: tinyurl.com/c2kanpl
- Capital raising Oct. 31, 2008: tinyurl.com/crcov25
Reasons to be fearful [ID:nL4E8IR1YT] - For previous columns by the authors, Reuters customers can click on [GALANI/]or [HAY/]
(Editing by Peter Thal Larsen and David Evans)
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