The Regulatory and other investigations or proceedings part of the Barclays rights prospectus, published on Monday, is worth reading in full. But first you need to look at this chart, because it provides some context for what happened at Barclays in October 2008. The price of BARC stock more or less halved that month.
The Group also faces existing regulatory and other investigations in various jurisdictions as well as the risk of potential future regulatory and other investigations or proceedings and/or further private actions and/or class actions being brought by third parties in connection with such regulatory and other investigations or proceedings.
The FCA has investigated certain agreements, including two advisory services agreements entered into by Barclays Bank with Qatar Holding LLC (“Qatar Holding”) in June and October 2008 respectively, and whether these may have related to Barclays’ capital raisings in June and November 2008.
The FCA issued warning notices (the “Warning Notices”) against Barclays and Barclays Bank on 13 September 2013.
The existence of the advisory services agreement entered into in June 2008 was disclosed but the entry into the advisory services agreement in October 2008 and the fees payable under both agreements, which amount to a total of £322 million payable over a period of five years, were not disclosed in the announcements or public documents relating to the capital raisings in June and November 2008. While the Warning Notices consider that Barclays and Barclays Bank believed at the time that there should be at least some unspecified and undetermined value to be derived from the agreements, they state that the primary purpose of the agreements was not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the capital raisings. The Warning Notices conclude that Barclays and Barclays Bank were in breach of certain disclosure-related Listing Rules and Barclays was also in breach of Listing Principle 3 (the requirement to act with integrity towards holders and potential holders of the Company’s shares). In this regard, the FCA considers that Barclays and Barclays Bank acted recklessly. The financial penalty in the Warning Notices against the Group is £50 million. However, Barclays and Barclays Bank continue to contest the findings.
The Serious Fraud Office is investigating the same agreements. Its investigation is at an earlier stage and the Group has received and continues to respond to requests for further information.
The DOJ and the SEC are undertaking an investigation into whether the Group’s relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act. They are also investigating the agreements referred to above including the two advisory services agreements. The US Federal Reserve has requested to be kept informed of these matters.
It is not possible to estimate the full impact on the Group if the final conclusion of these matters is adverse.
Final adverse findings would result in financial penalties, reputational impact and/or (if further action is taken by UK or US prosecutors) possible criminal liability, with a consequential risk of impact on share price and possible consequential civil litigation, and no assurance can be given as to the civil, criminal or regulatory consequences or their financial impact, if any, before final conclusions are reached by the authorities in the ongoing investigations.
Other key regulatory and other investigations or proceedings to which the Group is currently exposed include:
• Interchange investigations;
• Investigations into LIBOR, ISDAfix and other benchmarks;
• Interest rate hedging products redress;
• Federal Energy Regulatory Commission investigation; and
• Credit Default Swap antitrust investigations
So, Bob Diamond and his Middle East point man at the time, Roger Jenkins, hired one or more unnamed Qataris to provide advice to the bank, agreeing to pay £64.4m per year for five years.
We are not told what exactly these talented/connected individuals were advising on, so it is difficult to assess credulity here. But we can very easily see why Barclays might want to continue contesting the FCA’s contention that not all the money was for advice: accepting guilt would or will lead to a cascade of enforcement action from across the pond, the scariest threat coming from the US Foreign Corrupt Practices Act.
Is this fair? Corporations need to take responsibility for individuals acting in their name, but something is screwed up here when crisis-related sanctions are only pursued against the companies and banks involved, and not the individuals. In fact, rather than justice it becomes a type of state-sponsored financial gouging by regulators in both the US and the UK.
It’s a state of affairs that no one will dare argue with and it comes with one big, throbbing irony: it was incompetent financial regulators who let the crisis happen.