Top executives at Barclays in 2008 were desperate for a multibillion-pound rescue from Qatari investors, admitting that without the aid the bank was “dead” and the Gulf investors had the British lender “by the balls”, a court has heard.
The revelations, disclosed on the second day of a landmark criminal trial of former Barclays chief executive John Varley and three former colleagues on fraud allegations, are the most detailed account to date of the frantic scramble inside the bank to avoid nationalisation at the height of the financial crisis.
The efforts were ultimately successful and Qatari investors — including the Gulf state’s sovereign wealth fund and prime minister at the time, Sheikh Hamad bin Jassim bin Jabr al-Thani — injected more than £4bn into Barclays in two emergency capital calls worth more than £11bn.
These ultimately saved the bank from a UK government bailout during the crisis, which decimated Barclays’ share price and imperilled its high-street rivals.
But internal communications revealed during Thursday’s proceedings made clear how close to collapse Barclays came. One of the defendants, Richard Boath, wrote to a colleague in late May 2008: “Without 1bn, at the very least, from Q we are basically dead.”
Mr Boath, former European head of Barclays investment bank’s financial institutions group, wrote around the same time: “They’ve got us by the balls because the price was so low,” according to an email shown to the jury. “If he doesn’t come through with his money, we’re f**ked,” he said on a call with another colleague.
The Serious Fraud Office alleges Mr Varley and the three other defendants misled investors in the fundraisings by paying the Qataris £322m in secret fees that were not properly disclosed. It is the first jury trial in the world of a major bank’s chief executive over actions during the financial crisis.
A jury at Southwark Crown Court on Thursday heard that the bank gave the Qataris the code name “quail” during the fundraising negotiations, dubbed Project Heron.
“Quail is bagged,” Mr Varley wrote to his chairman, Marcus Agius, in early June, three weeks before the first £4.4bn capital call took place. “Took longer than I had hoped, but these people are the new cocks of the roost.”
To get to the point of “bagging quail”, the defendants devised a “dishonest mechanism” to pay the Qataris the extra fees they demanded, the SFO alleges.
The Qataris played “hardball”, Mr Varley explained to Mr Agius after meeting Sheikh Hamad at the Four Seasons Hotel in London, along with Bob Diamond, who at the time headed Barclays’ investment bank, and Roger Jenkins, described in court as the “gatekeeper” of the bank’s relationship with Qatar.
Tom Kalaris, who headed the bank’s wealth division at the time and who is a defendant in the case, also attended the meeting.
The Qataris’ demands included Barclays investing in Qatar National Bank, and a commission fee of 3.75 per cent in exchange for participating in the UK bank’s capital call. Other investors in the June fundraising, from China, Singapore and Japan, were being paid 1.5 per cent, the jury heard.
The Qatari investors are not party to the trial.
The SFO alleged that the eventual solution was an advisory services agreement with Qatar, whereby the bank purported to pay the Gulf state — initially £42m, then another £280m at the time of the second fundraising in October 2008 — in exchange for help developing its business in the region.
The SFO said the agreements, or ASAs, were just a “smokescreen” to hide the extra fees paid to secure Qatar’s participation. Edward Brown QC for the SFO explained that, had the other investors known, they would have demanded the same treatment, or not wanted to participate at all.
Mr Brown alleged the defendants misled their internal lawyers and colleagues to get sign-off on the ASAs, pretending that it was a “standalone” agreement.
The jury was played recordings of phone calls between Mr Kalaris and Mr Boath, in which Mr Boath is heard to point out that the fundraising’s subscription agreement declared that no other fees were being paid to investors beyond those disclosed. The existence of the ASA was disclosed, but not the amount of fees.
“None of us wants to go to jail here,” Mr Kalaris said on the recording. “The food sucks and the sex is worse.”
One colleague, Joanna Baker, who will give evidence later in the trial for the SFO along with Mr Agius, said she was “incredulous” when she heard about the plan, the court heard.
The jury has already been shown a copy of the first ASA: it was five paragraphs long and had a handwritten amount of £42m.
The defendants are accused of fraud by false representation over the two fundraisings. They deny the charges, which carry a maximum 10-year sentence. The trial, which could last as long as six months, continues.
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