Barclays faces £50m fine over Middle East bailouts

Barclays claims the payments were for advisory services but the regulator disagrees. Picture: Getty

The Financial Conduct Authority (FCA) has accused it of agreeing £322m of secret payments to Middle Eastern investors to secure their support for cash calls totalling more than £5 billion at the height of the financial crisis.

Barclays, which is contesting the FCA’s findings, said the fees relate to advisory services over a five-year period.

It is also being probed by the Serious Fraud Office and regulators in the US, and admitted it does not know how much the final cost could be.

Barclays was warned about the potential fine on Friday and told shareholders yesterday in a prospectus document for a rights issue that will tap investors for a further £5.8bn to plug a £12.8bn hole in its finances.

The FCA ruling follows its £290m penalty last year for rigging the Libor interbank lending rate.

Barclays said the FCA’s warning notices state that the main purpose of the agreements was “not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the capital raisings”.

Barclays is alleged to have broken listing rules over disclosure of information and acting with integrity to shareholders.

The bank turned to Qatari investors in 2008, helping it avoid the same fate as Royal Bank of Scotland and Lloyds, which were bailed out by the taxpayer.

It entered “advisory services agreements” with the Qataris in June and October 2008, but the fees were not disclosed at the time.

The regulator filed warning notices against Barclays late last week in which it accused the lender of failing to disclose advisory fees payable to Qatari interests.

“While the warning notices consider that Barclays and Barclays Bank believed at the time that there should be at least some unspecified and undetermined value to be derived from the agreements, they state that the primary purpose of the agreements was not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the capital raisings,” Barclays said.

The warning notices conclude that the group was in breach of certain listing rules: “In this regard, the FCA considers that Barclays and Barclays Bank acted recklessly.”

The bank revealed the latest blow as it warned it remains “cautious” about the trading climate.

Barclays said its investment bank had a tough summer, with income in July and August down “significantly” on a year earlier.  Income across the group was about £500m lower during July and August, it added.

In the eight months to the end of August adjusted income across the group was down 5 per cent on a year earlier.

Barclays also warned it may not be able to meet the Prudential Regulation Authority’s (PRA) demand that it strengthen its balance sheet by next summer.

The watchdog has ordered it to bolster its leverage ratio – a key measure of financial strength – to 3 per cent by the end of June 2014.

But Barclays warned it may be unable to meet these demands – aimed to prevent future taxpayer bank bailouts – if various fundraising plans are derailed or regulators move the goalposts.

And the lender warned multi-billion pound provisions to compensate customers mis-sold products could rise further.

It has set aside about £4bn for mis-sold payment protection insurance and £1.5bn for complex interest rate swaps sold to “non-sophisticated” small businesses such as bed and breakfasts.

Under its rights issue, Barclays is offering investors one new share for every four they own, at a price of 185p per share.

Shares in the bank closed up 4.48p at 306.05p.