Issue of the week: Barclays in the dock

Barclays’ decision to seek Middle Eastern funding in 2008 has resulted in fraud charges. Is the SFO being too severe?

“Citizens on both sides of the Atlantic have waited nearly a decade for a top banker to face charges relating to the financial crisis,” said Alex Brummer in the Daily Mail. “Now they have their wish.” After a painstakingly slow investigation, the Serious Fraud Office has brought criminal charges against Barclays, its “patrician” former CEO John Varley, and three associates – including the bank’s former star head of banking in the Middle East, Roger Jenkins – over their roles in seeking an emergency fundraising from Qatar during the 2008 credit crunch. The SFO case against Varley marks the first time that the head of a global bank has faced criminal charges for activities during the crisis. If convicted, he could face a maximum 22-year prison term.

Taxpayer bailouts of “freewheeling banks” have “stoked public anger” but ironically, “it was Barclays’ efforts to spare the taxpayer that gave rise to this investigation”, said Simon Jack on BBC News online. In October 2008, at the height of the crisis, the bank sought to shore up its shaky finances by raising £7.3bn from Middle East investors, including the state-owned fund Qatar Holdings. Two features of this deal prompted the SFO’S probe. First, a £332m payment (initially undisclosed) that Barclays made to Qatar Holdings for “advisory” services – which prosecutors claim was really a “sweetener”. Secondly, a £2bn loan was extended to the Qataris, allegedly to fund their investment. The central allegation, then, is that Barclays was effectively “lending to itself” to boost its own shares – “a very big no-no with banking regulators”.

The idea that Barclays should be cut some slack because it helped the UK Treasury avoid “another expensive bailout” must be “knocked on the head”, said Nils Pratley in The Guardian. “If Barclays achieved its great escape from nationalisation legally then it did well”; but if it did so criminally, the case must be prosecuted. “Any other course would encourage the idea that banks and bankers can play by different rules to the rest of us.” If this case does come to trial, it will mark “a pivot point in UK capitalism”, just as the 1990 Guinness trial exposed “a corrupt, clubbable City culture”, said Lex in the FT. Barclays insiders gave the SFO probe the code name “Cadmium” – “appropriately so”. The Qatar deal “has helped poison the reputation of a bank that was once a City darling”. Barclays shares were flat this week, but they will be affected. They already trade “at a discount to most Uk-listed peers and the Wall Street banks” precisely because Barclays’ “reputational issues never seem to end”. In retrospect, a state bailout back in 2008 “might have been the cheaper option”.