The salvation of Barclays comes back to haunt it

During the depths of the financial crisis, Barclays Plc raised 12 billion pounds ($15 billion), about half from Qatar, to avoid a collapse like Lehman Brothers or a bailout like Royal Bank of Scotland. It retained its independence, but a succession of investigations into misbehavior dating to those years has since bedeviled five chief executive officers.

Now the latest for CEO Jes Staley: Criminal charges stemming from the 2008 capital raisings against former chief John Varley and three other senior managers. They, along with the company, stand accused by the U.K.’s Serious Fraud Office of conspiracy to commit fraud and unlawful financial assistance. The claims relate to 322 million pounds in undisclosed fees Barclays paid to the Qatar Investment Authority and a $3 billion loan facility it made available to the nation at the time.

The four men are the most senior U.K. banking executives charged since the crisis. The charges also represent a major setback for Staley’s goal of putting the bank’s scandal-ridden past behind it. He is not only fighting the U.S. Department of Justice over a multibillion-dollar penalty for selling toxic residential mortgage bonds, but is also himself being probed by regulators for trying to unmask a whistle-blower. He’s already set to forfeit his entire 1.3 million-pound bonus, and could yet lose his job if regulators find him unfit to run a bank.

While global banks have paid billions in settlements over the mortgage-backed-security deals that helped plunge them into the crisis, criminal charges have primarily related to their efforts to get out of it. Deutsche Bank AG and Nomura Holdings Inc. are on trial in Milan, accused of colluding with Banca Monte dei Paschi di Siena SpA to cover up losses. Monte Paschi isn’t a defendant as it reached a plea deal last year.

The five-year long SFO investigation has ensnared Varley, along with a former chairman of investment banking for the Middle East, Roger Jenkins, ex-wealth chief Thomas Kalaris and Richard Boath, the former European head of the bank’s financial institutions group.

A lawyer for Varley declined to comment, while one for Kalaris didn’t immediately respond to requests for comment. Boath said in a statement he “was not a decision-maker and had no control over what the bank did in 2008.”

“As one might expect in the challenging circumstances of 2008, Mr. Jenkins sought and received both internal and external legal advice on each and every subject mentioned in the accusations leveled by the SFO today,” said Brad Kaufman, Jenkins’ U.S. based lawyer at Greenberg Traurig.

Diamond Questioned

The London-based bank said it’s “considering its position” in relation to the allegations. Barclays said that one of its main subsidiaries may face additional charges in the case.

Bob Diamond, who was the firm’s investment banking head at the time of the fundraising and later became CEO, wasn’t charged. He was questioned during the investigation.

The Qatar deals are also being reviewed by the Financial Conduct Authority, which re-opened its probe earlier this year. The regulator had previously indicated that the bank could face a penalty of 50 million pounds in relation to how it disclosed the fees paid to the Qataris. The FCA said that it was working closely with the SFO.

Staley has estimated that penalties for misbehavior have erased more than 20 billion pounds in profits. Barclays has been fined or paid compensation for rigging benchmark interest rates and currency markets, as well as having mis-sold financial products in the U.K., including payment-protection insurance and interest-rate swaps.

The case will be a test for the SFO, which has an uneven record on securing convictions against bankers. While it secured a conviction against Tom Hayes for rigging Libor, it failed to convict six brokers in a subsequent Libor case, That prompted questions of whether it and other regulatory agencies are able to hold bankers and traders accountable for supposed wrongdoing before and during the crisis.

A London court hearing is scheduled for July 3.

Courtesy Bloomberg