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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