Wednesday, 02 December, 2020

The inside story of the Barclays trial

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The acquittal of 3 former Barclays executives is the only time a jury has ruled on legal allegations versus senior bankers for situations in the 2008 disaster.

The senior executives in this demo, which started in October – Roger Jenkins, 64, Tom Kalaris, 64 and Richard Boath, 61 – had been not the major bosses of Barclays.

Alternatively, they ended up in between a person and 4 ranks down from the board of directors in the bank’s hierarchical composition.

The allegations centred on a giant fundraising physical exercise in 2008 which enabled Barclays to escape the nationalisation forced on its opponents, RBS, Lloyds and HBOS.

The defendants were being accused by prosecutors of conspiring to commit fraud in connection with that fundraising exertion.

They argued that it was not a fraud – and that if, alternatively, it was judged to be a fraud, they ended up not the ones who should be held accountable for it.

Their steps, their barristers explained, were accepted and negotiated at the top of the financial institution and signed off by the banks’ major attorneys.

In the end, the jury took significantly less than six several hours to uncover in their favour. The choice will come as a setback for the Significant Fraud Office, which took a long time to start its prosecution and has now experienced its circumstance thrown out.

Stress to increase resources

In 2008, Barclays, like other banking institutions, was managing very low on cash. The financial institution deregulation of the late 1990s and the credit rating and property increase of the early to mid-Noughties had led all financial institutions to lend far a lot more than they ever experienced in advance of.

The vital variance was that the cash for that lending was coming, not just from the banks’ savers and depositors, but also from buyers all all-around the entire world.

As the quantity of lending grew, house price ranges rose and bonuses soared.

The banks took their eyes off their harmony sheets – a actuality which by 2008 was painfully clear.

The credit crunch that had been induced by big losses on sub-primary mortgages in the US began in August 2007: banking institutions failed to want to lend to every other, for the reason that they failed to know how substantially both they or their competitors experienced shed.

For RBS, HBOS and Barclays, what are known as “funds ratios” – the fiscal basic safety cushions they stored in opposition to the threat of not getting their income back again – were being hunting threadbare.

At its worst, for each individual £100 the banks had lent, if as tiny as £3 or £4 unsuccessful to be repaid, it may well be more than enough to bankrupt them.

Right after the rescue of Northern Rock in September 2007, the Treasury dug into the figures and set the financial institutions on recognize. They had to plump up those people basic safety cushions by elevating billions of lbs ..

At first, wishing to stay clear of further Northern Rock-style nationalisations, regulators and govt insisted they do so privately.

RBS lifted some money on the marketplaces and HBOS tried to do the very same, with lousy results. The smart income at the major Metropolis institutions didn’t want extra lender shares. Who would want to invest in beefing up the financial institutions when they looked in such negative shape?

Qataris need better expenses

So in May 2008, Barclays’ best bosses set in movement Undertaking Birdcage, a system to raise billions of lbs from sovereign prosperity cash in China, Japan, Singapore and the Middle East, who had been continue to prepared to acquire a chance in exchange for a fantastic return.

Its “cornerstone investor” – the one particular whose commitment would persuade the other individuals to make investments – was the gasoline-wealthy Gulf condition of Qatar.

Roger Jenkins, who headed Barclays Capital’s procedure in the Middle East, had acquired to know Sheikh Hamad bin Jassim bin Jabr Al-Thani (also regarded as ‘HBJ’), the Key Minister of Qatar, and persuaded him to invest.

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Sheikh Hamad was crucial to the Barclays fundraising generate

Barclays had accepted expenses of 1.5% to be compensated to just about every investor who put dollars up in trade for shares.

Having said that, at a assembly on 3 June at Claridge’s, a consultant of the Sheikh instructed Mr Jenkins he wanted far more than double the usual fees.

In capital raisings these kinds of as the 1 Barclays was doing, buyers count on to be addressed on an equivalent footing with every other and compensated the similar charges.

However, the court docket read that top rated Barclays executives did not want to pay out all traders the exact bigger cost they had agreed to spend the Qataris.

So a mechanism was located to pay out the Qataris added: they would acquire £42m in an agreement for advisory expert services.

On 25 June 2008, Barclays announced it experienced elevated £4.5bn. The traders were being the Qatar Investment Authority, yet another Qatari financial investment fund termed Challenger (operate by HBJ), Sumitomo Mitsui Banking Company of Japan, China Growth Lender and Temasek, a sovereign prosperity fund owned by the government of Singapore. The advisory expert services agreement was mentioned, but not the fee.

Peak of the disaster

By early October, having said that, it was obvious to the Treasury, the Financial institution of England and the regulators that the non-public fundraisings by the banking companies have been not plenty of.

Pursuing the collapse of Lehman Brothers in September, the full financial procedure was in jeopardy.

Then Key Minister Gordon Brown and Chancellor Alistair Darling feared that if they did not drive the banking institutions to beef up their threadbare finances as a make a difference of urgency, extra Northern Rock-design and style lender runs would adhere to and money devices would dry up.

The banking disaster threatened to mutate into a whole-blown depression.

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Gordon Brown and Alistair Darling ended up involved banks did not have ample capital

Aspect-nationalising the banking institutions by forcing them to choose taxpayers’ capital in exchange for shares was the government’s hesitant but decisive resolution, imposed on RBS, Lloyds and HBOS on the weekend of 11-12 Oct and announced on 13 Oct 2008.

But Barclays was identified to avoid nationalisation. On the early morning of 13 Oct, it declared that it was increasing a lot more funds privately.

Roger Jenkins went back again to Sheikh Hamad, whose associates now demanded payment for what he had currently shed on Barclays’ slipping share price tag, on major of an more reward for investing.

Later that month, the Advisory Services Agreement agreement was extended: Barclays would now pay the Qataris a additional £280m.

On 31 October, Barclays declared it had elevated a overall of £7.3bn from the Qatari buyers and from the nearby emirate of Abu Dhabi. This time, neither the charge nor the Advisory Services Settlement were referred to.

Allegations and defence

In both June and Oct 2008 (as is regular), public documents had to be sent to traders setting out the phrases of the cash elevating (for example, the service fees Barclays would shell out) so they could see what they have been purchasing into: the prospectuses and subscription agreements.

It was in those people files, the Serious Fraud Office alleged, that fraudulent representations have been built.

Precisely, prosecutors advised the court, the files claimed there were no other service fees or commissions payable by Barclays in relationship with the investments becoming designed, outside of those people disclosed in the community paperwork.

That, the SFO explained, was “plainly a lie”: the bank experienced paid out £322m in undisclosed extra costs demanded by the Qataris, by using the facet agreements for advisory solutions.

All those agreements, prosecutor Ed Brown QC advised the court, had been “mechanisms to pretend that the fees connected to legitimate solutions agreements, when in reality they were being just a means of having to pay the Qataris the additional fees”.

Barclays’ board of directors realized about the agreements and that they acquired guidance from attorneys for the financial institution who had told them the agreements have been lawful – as extended as the lender bought important services from the Qataris.

The SFO’s counter-claim was that the defendants by no means intended that important assistance companies would be furnished – and hid that from the board and the legal professionals.

Charging choice

Right after investigating the circumstance for five years, Significant Fraud Place of work director David Environmentally friendly eventually took a selection to cost four executives with fraud and conspiracy to defraud on 20 June 2017.

Another executive, previous finance director Chris Lucas, was alleged to be crucial to the conspiracy but was not prosecuted since of ill-wellbeing.

The scenario in opposition to Roger Jenkins, Tom Kalaris and Richard Boath experienced one more notably unconventional attribute. The prosecutor’s accusation was that they ended up element of a legal conspiracy to commit fraud by wrong representation.

But, as defence lawyers pointed out, they did not make the representations themselves.

The alleged lies in the public files – expressing they experienced paid out no added expenses – have been designed by the lender as a company entity. And the banks’ top rated administrators experienced testified to their reality in directors’ letters.

Yet neither the lender nor its administrators have been on trial. So the SFO argued the conspirators successfully got the bank to notify the lies, expressing there ended up “no more service fees” with no the bank being aware of it was carrying out so.

In the SFO prosecutor’s narrative, the financial institution was an “harmless agent”, innocently carrying out the fraudulent intentions of the accused conspirators. The defendants, needless to say, turned down that tale, and their circumstance has now prevailed.

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