Barclays could face prosecution over Qatar deal
Allegations that Barclays lent money to the Qataris to buy its own shares at the height of the financial crisis could see the bank face fresh prosecution in the US over Libor fixing, an analyst has warned.
Although Barclays agreed a deferred prosecution with the US department of justice in July, Sandy Chen at broker Cenkos warns that any criminal conviction pressed by the Financial Services Authority (FSA) could “annul the protection from prosecution” enjoyed by Barclays after it paid a £290m fine for rigging the key interbank interest rate.
Scandal-hit Barclays is reportedly under investigation over allegations it lent Qatar money to invest in the bank in 2008 as part of an emergency cash call to avoid a government bail-out.
The probe comes as the terms of the bank’s fundraising at the height of the financial crisis are already being scrutinised by the FSA and the Serious Fraud Office.
Former Citi banker Peter Hahn, now at Cass Business School, said: “The concept of lending money to any investor to purchase your own shares raises a series of immediate questions about disclosure and other regulatory issues.”
The allegation piles yet more pressure on Barclays chief executive Antony Jenkins as he battles to repair the bank’s reputation following a string of scandals, including the Libor rate rigging affair and mis-selling of payment protection insurance.
Barclays received cash injections in 2008 worth a total of £6.1 billion from Qatar Holding, which is a subsidiary of the Qatar Investment Authority, and Challenger, an investment vehicle of Sheikh Hamad bin Jassim bin Jabr al-Thani, the prime minister of Qatar, and his family.
Investors from Abu Dhabi and other sovereign wealth funds also pumped cash into the group as part of a capital raising to prevent the government bailing it out – a move that helped it avoid the fate suffered by part-nationalised Royal Bank of Scotland and Lloyds Banking Group.
But existing shareholders complained the terms offered to the new investors were too attractive, while the fees paid for the deal are also thought to be under investigation.
Chen said any signs of wrongdoing uncovered by the FSA could see the bank “reap the whirlwind” and create a scandal on par with failed Icelandic bank Kaupthing, which has seen two arrested and jailed, and drinks giant Guinness in the 1980s, which led to a criminal prosecution of the “Guinness Four”.
In a note to investors, Chen wrote: “If the press reports are true – about Barclays giving a loan to the Qataris in order to help them pay for their 2008 purchase of BARC shares [which enabled BARC to avoid a government bailout] – then we think Barclays would have a major problem [recalling share scandals such as Kaupthing and Guinness].
“This could also affect the Libor manipulation DPA [deferred prosecution agreement)] with the US department of justice that had been agreed last July; we think a criminal conviction would annul the protection from prosecution. Obviously, with an FSA investigation still under way, it is too soon to say if any of this will come to pass, but we regard this as a key risk. Sell.”
A spokesman for Barclays said: “The investigations are ongoing and as such we are unable to comment.”
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