Fresh from the Libor scandal and mis-selling swaps to small businesses, Barclays is under investigation by the FSA over hundreds of millions of pounds in fees paid out during the financial crisis to help the bank raise money.
It doesn’t rain but that its pours at Barclays. Just when you thought it couldn’t get worse for the embattled bank, it turns out that the Financial Services Authority is investigating its finance director (and three other current or former employees) over the ‘sufficiency of disclosure’ of certain fees and commercial agreements when it raised billions of pounds at the height of the financial crisis.
This revelation was tucked away at the bottom of page 87 of Barclays’ (otherwise very positive) results announcement today:
So what might this be talking about? Barclays itself is tight-lipped about the investigation, and chairman Marcus Agius was clearly frustrated by a barrage of questions about it today. But it appears to relate to the two big capital raising exercises by Barclays in June 2008 and October / November 2008, when the bank raised nearly £12bn
This money came primarily from sovereign wealth funds and, in particular, from Qatar Holding and Sheikh Mansour Bin Zayed Al-Nahyan, a member of the Abu Dhabi royal family who in his spare time happens to own Manchester City football club.
The first £4.5bn capital raising in June 2008 was controversial because it largely bypassed existing investors and instead raised more than £1.7bn from Qatar Holding, as well as significant amounts from Sumitomo Mitsui Banking Corporation, China Development Bank and Temasek Holdings, the Singapoeran fund.
The second deal, announced at the end of October 2008 and completed in November was more controversial – in particular because the bank paid hundreds of millions of dollars in fees to three investors in exchange for their investment of around £5.4bn in Barclays, on top of the punitively high cost of the funding exercise.
Barclays raised £4.3bn in ‘mandatory convertible notes’ of which £2.8bn was taken up by Sheihk Mansour, Qatar Holding, and a company called Challenger (a Qatari vehicle set up in the British Virgin Islands for the express purpose of investing in Barclays), and which paid out an eye-watering 14% coupon.
It also raised £3bn of ‘reserve capital instruments ‘ – effectively warrants – from Qatar Holding and Sheikh Mansour, which paid out 9.75% in the short-term.
These two issues came with some very unusual fees attached. Here are the details from the documentation at the time:
Add all of this up and you get a staggering £238m paid out in fees by Barclays to Sheikh Mansour (£110m), Qatar Holding (£116m) and Challenger (£12m), in exchange for them investing in Barclays on generous terms. This is, um, unusual: usually investors don’t get paid upfront for the privilege of investing in something.
One person familiar with the situation said the fees were paid at least in part because Barclays had already ‘hit the ceiling’ in terms of the coupon (in other words, without the fees, the investors would have demanded an even higher coupon).
But the issue is less that the fees were paid, and more whether Barclays sufficiently disclosed why they were paid and to whom. The same person says the big question is what happened to the fees after they were paid, and whether that should have been disclosed.
A blast from the past
This is where things get more interesting. Two individuals stand out in helping to arrange the deal: a former girlfriend of Prince Andrew and a former banker at Barclays who was once reputed to be the highest paid person in the City of London.
Let’s start with Amanda Staveley, a 39-year-old independent fixer and dealmaker who has close links with wealthy families and governments in the Gulf region. This is not the place to write a long profile of her interesting past, but here is a ‘Lunch with the FT’ piece from August last year and a gushing profile in the Evening Standard from 2009. She has never confirmed or denied reports that she made $40m personally from this deal by bringing Sheikh Mansour to the table. The FT at the time noted that while some thought this was an exaggeration, others believed it was a underestimate.
Her company PCP Capital has an office in Mayfair but is based in the Gulf, and she appears to have a flat on Park Lane, according to Companies House. Staveley could not be reached for comment.
And then there is Roger Jenkins, then a senior banker at Barclays who in 2008 had relocated to the Gulf in his new role as ‘executive chairman of investment banking and investment management for the Middle East’ at Barclays. Jenkins brought the Qataris to the table, and is also reputed to have made tens of millions of dollars personally from the deal.
He now works as a partner at Brazilian bank BTG Pactual and is based in Los Angeles where he is dating the model Elle Macpherson (apparently). He didn’t respond to a call to BTG Pactual requesting comment.
There is no suggestion that either Staveley or Jenkins did anything wrong over this deal – in fact they helped Barclays achieve its aim of avoiding the same fate as RBS or Lloyds Banking Group in being part-nationalised by the UK government.
The issue is instead around the fees that were paid by Barclays – and disclosed in its filings at the time – and why exactly they were paid.
If you thought the Barclays soap opera was over, think again. Tune in again soon for the latest instalment that is likely to involve not only the bank’s finance director but (according to one source) two former senior employees and one senior banker still with the firm…
Postscript:
This article was originally intended to be about how Barclays investment bank had performed in the second quarter. It did rather well, with its revenues and profits ahead of its main US rivals.