A senior banker who worked on Barclays’ emergency fundraising in 2008 raised concerns with executives at the bank about the way Qatar’s investment was structured, a court was told on Thursday.
Four former Barclays executives, including financial crisis-era CEO John Varley, stand accused of conspiracy to commit fraud by false representation. The Serious Fraud Office (SFO) alleges that the executives misled investors by hiding the true amount paid to Qatar for a multibillion pound investment at the height of the financial crisis.
The Qataris were paid over double the rate other investors are the time were paid, the SFO alleges.
The defendants in the case are: Varley, who was CEO of Barclays between 2004 and 2011, Roger Jenkins, who formerly ran Barclays Capital’s investment management business in the Middle East and North Africa, Thomas Kalaris, the former CEO of Barclays’ Wealth Management, and Richard Boath, the former head of European financial institutions group at Barclays Capital.
Varley and Jenkins face two counts and Kalaris and Boath face one. All four defendants have pleaded not guilty. Qatar is not accused of any wrongdoing.
Edward Brown QC, the lead lawyer for the SFO, said on Thursday that Joanna Baker, who worked in Barclays’ Corporate Development division, “had concerns at the time that the Advisory Services Agreement (ASAs) would be perceived as some kind of hidden commission.”
The jury at Southwark Crown Court heard on Wednesday, the first day of the case, that Barclays struck separate advisory agreements with Qatar at the same time as the Qataris invested in Barclays in 2008. The SFO, which is bringing the case, alleges that these agreements were “smokescreens” to cover up higher commission fees paid to Qatar in exchange for their investment.
“She [Baker] didn’t keep those concerns to herself and wasn’t the only one with them,” Brown told the jury on Thursday. “She believed that the concerns had been escalated to Chris Lucas and the Board and that, as she understood it, Chris Lucas had taken a decision on signing up to the Advisory Agreement.”
The court was told on Wednesday that Chris Lucas, who was CFO of Barclays during the Qatari investment, is suffering from a serious illness and is not fit to stand trial. He is named as a co-conspirator in the case.
Brown told the court on Thursday that Baker asked questions about the services covered by the ASAs but received “extremely vague” answers.
“Richard Boath was her primary contact at BarCap [Barclays Capital] but it was difficult to pin him down on the specific services that would be provided under the ASA,” the court was told.
“It was Richard Boath who told Joanna Baker that the agreement was standalone, meaning it was separate to the Qatari investment. She did not believe him and told him so, understanding that the word standalone meant unconnected to the capital raising.”
Baker was “incredulous” when she found out that the fees paid to the Qataris were not disclosed in fundraising documents sent to shareholders as part of the share placings in 2008, Brown said. Qatari investors were paid £42m ($54.7m) under the first ASA.
‘Unpopular, unattractive, and weak‘
Qatar’s sovereign wealth fund and a company connected to the Middle Eastern country’s ruling family invested £4.4bn ($5.7bn) in Barclays across two capital raises in 2008, as part of a total of £11.8bn raised by the bank. The emergency fundraising saved the bank from a potential government bailout at the height of the 2008 banking crisis.
Qatar was one of four strategic investors identified by Barclays and was seen as crucial to the success of the entire fundraising, Brown said. The jury was shown an email correspondence between Varley and Bob Diamond, who was at the time head of Barclays Capital, after the Qataris had initially indicated a willingness to invest at least £1bn.
“This is HUGE. So pumped!!!” Diamond wrote. “This, if we can close makes CDB [China Development Bank, one of the other strategic investors] so much more certain!!”
Barclays identified that a “strategic relationship with the Qataris could be very valuable, as the country had enormous wealth and intended to be proactive managers of that wealth,” the court was told.
However, the Qataris asked for fees of 3.75% of their investment, which was over double the going market rate of commission, the court heard. The jury was shown an email from John Varley saying the Qataris were “playing hardball.”
“The view within Barclays was that they needed to be in line with market practice,” Brown told the court. “If you’re not in line, and seen to be desperate, then you show weakness. They therefore needed to offer commission rates that were normal for the market.”
It was also critical that the fundraising in 2008 succeed. If it failed, Barclays would appear “unpopular, unattractive, and weak, and attract therefore a loss of confidence,” the court was told.
Brown said that Baker and the Corporate Development division at the bank were asked to look at ways to structure the deal so that Qatar could receive the higher rate of commission that they had asked for, while giving other investors the market rate.
Baker ultimately told the bank that her division couldn’t find a structure they were “comfortable” with.
The court was told that Kalaris was part of the “core team” that led the first capital raising in 2008, which was dubbed “Project Heron” internally at Barclays. He “was described as the architect of the group (also as “quarterback”),” Brown said.
Roger Jenkins was the “the gatekeeper for Qatar,” the court heard, and talked to all the strategic investors, particularly Qatar. Boath played a supporting role, Brown said.
The Qataris were ultimately paid £322m of fees and ASA payments in 2008, equivalent to 3.25% of their investment, the court was told.
The case is expected to last up to six months and continues at Southwark Crown Court.