The prime minister of Qatar sought assurances from the UK government that it was not about to nationalise Barclays before his country’s sovereign wealth fund ploughed £2.1bn into the bank in October 2008, Barclays’ former chief executive told fraud investigators.
John Varley, who is on trial for fraud in a landmark London trial, headed Barclays as the worst financial crisis in a generation hit. A jury at Southwark Crown Court was told on Thursday of his first comments to investigators, in which he tried to describe the bank’s desperate attempts to avoid a UK taxpayer bailout.
The Serious Fraud Office alleges that Mr Varley and three other former top executives at the bank pledged more than £320m in secret fees to Qatar, which were not properly disclosed to the market, in exchange for investment. The SFO alleges that this was done through “sham” advisory services agreements. It is the first jury trial in the world of a major bank’s CEO over events during the crisis.
The jury heard Mr Varley’s 2014 statement to SFO investigators, in which he denied all wrongdoing and stressed that Barclays’ board approved the fundraisings and advisory agreements, which were drafted with extensive legal advice.
Qatar and its prime minister at the time, Sheikh Hamad bin Jassim bin Jabr al-Thani, invested a total of £4bn in Barclays in 2008 in two emergency capital calls that saved the bank from government control.
But Qatar saw the value of its first investment in the bank plunge by as much as £400m in one day as Barclays’ shares plummeted 20 per cent as markets roiled in the wake of Lehman Brothers’ historic bankruptcy in October 2008, the court heard.
“I believe Sheikh Hamad sought assurances from the prime minister, Gordon Brown, that the Qatari investment in Barclays would not be forcibly diluted by a mandatory British government investment,” Mr Varley told investigators. He added that he sought similar assurance from the City regulator, the Financial Services Authority.
Mr Varley argued that the two side deals — first for £42m, then extended for a further £280m — provided good value for money and that there was “no scientific way of arriving at a precise value” on the strategic advice and preferential treatment in the region that the bank was to receive.
He told investigators of the importance of an oil-and-gas hedging programme, known as Project Tinbac, which was expected to net Barclays $250m a year advising Qatar.
The “gatekeeper” to Qatar, through his relationship with Sheikh Hamad, was Roger Jenkins, the banker who negotiated the two deals and who is also on trial.
While he received a £25m bonus for successfully securing the deals, Mr Jenkins stressed to SFO investigators that he was “not responsible for the bank’s decisions” and that “all material aspects of the advisory agreements were reviewed and approved” by Mr Varley and Chris Lucas, the chief financial officer at the time, the court heard. Mr Jenkins also denied all wrongdoing in his SFO interview.
The court heard that after Mr Jenkins left the bank in 2009 — he had suffered a heart attack in August 2008 — the regional relationship with Qatar dwindled.
Sheikh Hamad is not part of the trial but Mr Justice Jay has told the jury that the logic of the SFO case, if correct, means the Qatari entities were just as dishonest as the bankers.
The trial continues. The defendants deny the charges, which carry a maximum 10-year sentence.