Barclays Charged for Crisis Dealings: A Crisis That is Going Nowhere

In the second post today, we will take a brief look at the latest development from a regulator (loosely termed) that we have looked at many occasions – the Serious Fraud Office (SFO). In responding to actions taken in the midst of the Crisis, news today confirms that the Office has charged Barclays for loans the bank made to Qatar at the same time investors from the Country provided the necessary lifeline which allowed the bank to survive the Crisis without governmental support. The impact of the prospective action could be far-reaching, so in this post the details of the allegations will be examined, as will the potential fallout.

During the Crisis, the British-based bank tapped investors for nearly £21 billion, with almost £4.5 billion coming from Qatar Holding – part of the State’s Sovereign Wealth Fund – and Challenger Universal, the investment vehicle of the former Qatari Prime Minister. Furthermore, the bank acquired more than £7 billion more from the two vehicles, along with leading figures from Abu Dhabi, but the details of the deals prompted scrutiny and ultimately a massive five-year-plus investigation by the SFO; today, the SFO made the latest in a string of moves on the back of that investigation. Last year the bank’s parent company, and four of its leading executives were charged by the SFO, but today the SFO charged the bank, via its operating company this time, for a second time on counts of fraud. The difference in focus means that whilst the executives face criminal charges that carry up to ten years in prison, the focus on the operational company means that ‘the bank could face regulatory penalties, including withdrawals of its banking licences in the UK and other countries’. The fraudulent act in question is a £2.3 billion loan made to Qatar Holdings at the same time it received the injection of capital, with the charge being that the loan was used, ‘either directly, or indirectly, to buy shares in Barclays, which the SFO says is “unlawful financial assistance”’. The job of the SFO now is to prove that the directors knew what the loan was to be used for, but market commentators, and Barclays itself, seem un-phased by the developments with people focusing on the fact that many banks have been charged and penalised for similar offences committed in the Crisis era and have continued operating successfully; however, is that really the extent of the impact of these prospective problems?

The Guardian reports that operations, specifically from a retail point of view, would likely not be affected as new ring-fencing rules come into force, but that the investment banking, corporate lending, and international operation arms would all be affected. Yet, the same media outlet raises the question of the impact upon Barclays’ branches, with the suggestion being that a widespread revoking of licences would see the bank forced to halt retail operations in spite of the ring-fencing protection, although the article ends with the realistic summation that the SFO, and specifically the FCA in being tasked with implementing punishment, are highly unlikely to go to what the article suggests is the ‘nuclear option’. So, in reality, this issue is analogous the other post today concerning RBS – the environment today is dictating to what level, if at all, punishment is given to these transgressive companies.

Ultimately, the impact of this charge is proving to be minimal within the marketplace because market participants realise that there are so many hurdles before the bank is stripped of its operating licences, which raises the question of the effectiveness of the SFO’s approach. The SFO’s approach is correct in terms of it has found illegality, and is proceeding accordingly. However, the reality of the situation is being played out across the headlines; impactful regulation and punishment is simply not an option at the top level of business. The likely situation is that the bank and the charged executives will allocate remarkable resources to their defence, and the case will drag on for many more years; what it does tell us, however, is that the Crisis era and the actions taken within it continue to haunt us still, with the environment today being directly dictated by the actions, and more importantly the sentiments, that were developed during that era. On that basis, the SFO is between a rock and hard place, and with its action being scrutinised by leading political figures, it is likely the SFO will back down in this instance and settlement of some sort being viewed as a victory under these circumstances; that is quite a revealing chain of events all things considered.


Keywords: Barclays, Banking, Fraud, SFO, Politics, Law, Business, Qatar, Financial Crisis, @finregmatters.

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