LONDON: Three senior ex-Barclays Plc executives kept other investors in the dark about millions of pounds in fees the bank paid Qatar during the struggle to save the lender at the height of the 2008 financial crisis, a prosecutor said on the opening day of a historic fraud trial.
The men were working over the summer of 2008 to secure billions of dollars from Qatar’s sovereign-wealth fund, which would allow Barclays to avoid nationalization when the chaos of the financial crisis destroyed its balance sheet, Ed Brown, the lead prosecutor for the Serious Fraud Office, told a London jury Tuesday.
Former Middle Eastern investment banking chief Roger Jenkins, ex-wealth boss Tom Kalaris and Richard Boath, who headed up Barclays’s financial institutions group in the region, face charges for defrauding investors by not disclosing the £322 million in fees Barclays paid the Qataris.
The fees, the SFO argues, were paid under a “pretend” agreement that claimed Qatar was delivering advisory services.
“These agreements were an invention, used as a means to hide the additional fees that were in truth being paid to the Qataris for investing,” Brown said during a opening argument that’s expected to last the rest of the week.
“The Qatari investment had to be achieved and this meant telling lies. Telling lies in this way, say the prosecution, is a criminal offense, committing fraud by false representation.”
The trial is the most high-profile case targeting top bankers for events taking place during the financial crisis. It is also the most significant case brought by the SFO.
The three men pleaded not guilty on Monday, and their attorneys will start to present their opening arguments next week.
Former Barclays Finance Director Chris Lucas was part of the conspiracy, but is too ill to stand trial, Brown said. The trial is scheduled to last between four and six months, with the men facing prison sentences of as long as 10 years.
In 2008, Barclays held two capital raisings in which it secured £4.4 billion in June and £6.8 billion in October, Brown said.
The Qatari share was “very substantial,” totaling £1.9 billion in June and £2.05 billion in October, he said.
While other investors got a 1.5% commission for their investments, the Qatari were granted “considerably higher” percentages, amounting to £42 million for the first cash call and £280 million for the second, Brown said.
While the first so-called advisory services agreements was published, the amount was not, Brown said. The second agreement was concealed from investors entirely, he said, adding that both should’ve been fully disclosed in prospectuses accompanying the cash calls.
Barclays was desperate for the Qataris to invest and offered them higher rates, because they “drove a hard bargain,” Brown said.
The bank also had to project confidence to other investors and publishing how much it was prepared to pay in commissions would’ve made it look weak, he said.
“It is no exaggeration to say that Barclays’ future as an independent bank was in jeopardy in September and October of 2008,” Brown said.
“The board, which included Chris Lucas, was determined to avoid taking government funds, a ‘bail-out,’ convinced that doing so would render Barclays very restricted in its flexibility and constrained by government policy.”