On the morning of Monday, October 13, 2008, the senior executives of Barclays Bank were exultant.
The headlines that day were dominated by the British government’s £37 billion (Dh172.21bn) “rescue” of the country’s best-known banks – Lloyds, HBOS and Royal Bank of Scotland. Barclays, to the fury of the Lloyds’ chief executive, Eric Daniels, was not among them. Within a few hours Barclays triumphantly announced it had successfully avoided the “stigma” of being bailed out by the taxpayer by raising its own new capital, which all British banks including HSBC and Standard Chartered, were required to do to comply with the new rules on capital ratios.
John Varley, then Barclays’ chief executive, called a press conference to announce that Barclays had found £7bn from private investors and had turned down the offer of state money. “We don’t need the government facility,” he said contemptuously.
Lloyds actually had a much stronger capital base than Barclays but because it had agreed to take over HBOS, which would have gone down without it, had agreed to accept the “Queen’s Shilling”, as a Bank of England executive liked to refer to it. So Lloyds got £7bn, HBOS got £13bn (and more later) and RBS got the rest. Mr Daniels had been assured by the Bank of England that Barclays would be included in the bailout, too, and afterwards insisted he would never have gone along with the bailout if he had known it was not.
“Eric was promised on Saturday morning that Barclays was coming in,” a senior Lloyds director told me later. “And if he’d known they weren’t, he would probably have walked away.” If he had, HBOS would have gone bust and would have dragged RBS down with it and Britain – and the world – would have been plunged into a banking crisis such as it had never known. Those were the stakes that weekend.
Lloyds and the others got their capital injection at an 8 per cent discount on the market price of their shares; Barclays paid a 50 per cent discount, which Mr Varley still believed was worth it. But it is the details of the commissions and side-deals struck that have been the focus for a criminal investigation by Britain’s Serious Fraud Office (SFO) for the past couple of years. That came to a head yesterday with the announcement that the bank and four senior officials have been charged with fraud.
It is all the more ironic, therefore, that the first – and so far only – bankers to face criminal charges for the crisis are Mr Varley, Roger Jenkins and two other senior executives. Not Fred “the Shred” Goodwin, not Andy Hornby, Lord Stephenson or James Crosby at HBOS, not Peter Cummings who allegedly made huge loans to dodgy property developers in Ireland at the top of the market, and not anyone else who nearly brought the banking system down.
Mr Jenkins, known as “the rainmaker” for his ability to put deals together and his contacts in the Middle East, is the man at the centre of it all. He was Barclays’ highest paid executive, earning between £40 million and £75m in 2005 and goodness know what in 2008. It was he who put together the finance to take over the stricken Lehman Brothers, and Barclays negotiated with the New York Fed and US Treasury right up to the moment, on that fateful night in September 2008, when Lehman filed for bankruptcy, the biggest collapse in US history.
The major source of Barclays’ capital, as we now know but which Mr Varley was coy about then, were Qatar and Abu Dhabi investors. Barclays had two fund-raising exercises that year, one in June and the other a month after Lehman Brothers went down. In each case it turned to the same sources, introduced to Mr Jenkins by the dealmaker Amanda Staveley, who is now suing Barclays for US$1bn for reneging on her commission. Qatar Holding and vehicles belonging to Sheikh Hassim bin Jassim bin Jabr Al Thani (or HBJ as he is familiarly known), and his family invested £6.1bn into the bank over the course of 2008 and became its biggest shareholder.
A further irony is that Lloyds has repaid the UK government and delivered it a small profit, while Barclays is in a steep spiral from which it will be very difficult to pull out. In the past few years it has faced an unprecedented number of investigations by regulators, the most serious being the SFO criminal inquiry.
That is a clear indication something is seriously wrong with the culture. I do not see Barclays surviving in its existing form much beyond the end of the year. The bank that refused the “Queen’s Shilling” is now deeply regretting it.
Ivan Fallon is a former business editor of The Sunday Times