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Barclays Bank and Former Boss Face Fraud Charges

Shares in Barclays fall after four former directors charged by Serious Fraud Office over capital raised from Qatar during financial crisis

Emma Simon 20 June, 2017 | 11:13AM

The Serious Fraud Office (SFO) has announced it will charge Barclays Bank (BARC) and four of its former senior executives with conspiracy to commit fraud - including John Varley, the ex-chief executive.

The charges relate to emergency funds raised by the bank in 2008 from Qatari investors, at the height of the financial crisis. This capital helped Barclays avoid a state bailout, unlike Lloyds (LLOY) and the Royal Bank of Scotland (RBS) who were forced to rely on a tax-payer funded rescue.

These are the first senior banking executives to be charged with criminal activities in relation to activities surrounding the financial crisis.

Banking Shares Fall On SFO Charges

Not surprisingly Barclays shares fell by 0.5% in early trading, as investors digested the news. Other banking shares were also hit, with Lloyds being one of the biggest fallers after the stock market opened, with shares down 1.05%.

This isn’t the only investigation that bank faces over this issue. In 2013 the Financial Conduct Authority said it would fine Barclays £50 million over this fundraising. But the investigation was deferred and reopened. The FCA is likely to return to this issue pending the outcome of the SFO trial.

The charges specifically relate to capital raised from Qatar Holding LLC and Challenger Universal Ltd, and a US$3 billion loan facility made available to the State of Qatar. The SFO investigations have focused on the £322 million in payments that Barclays made to Qatari investors during this period, as well as the $3 billion loan.

The other directors to be charged with conspiracy to commit fraud are Roger Jenkins, a former senior investment banker, Thomas Kalaris, a former chief executive of Barclays’ wealth division and Richard Boath, the ex-European head of financial institutions have been charged with the same offence. In addition, Varley and Jenkins have also been charged with the provision of unlawful financial assistance.

Barclays says it is considering its position and awaiting further details.

Financial Crisis Casts Long Reputational Shadow on Banks

Laith Khalaf, senior analysts at Hargreaves Lansdown said: “The SFO hasn’t pulled any punches, and Barclays now finds itself facing yet another regulatory battle. The bank is already facing litigation from the US department of Justice and an FCA investigation into its current boss, Jes Staley, for trying to uncover the identity of a whistleblower. Skeletons seem to be jumping out of lots of closets at once for Barclays.

“The spectacle of former executives being paraded through court will do nothing to strengthen the credentials of the bank, as it continues to try to execute its turnaround plan. While RBS and Fred Goodwin recently avoided the ignominy of a court appearance, it appears that Barclays and its former CEO John Varley will not.”

However, Khalaf added: “The muted reaction in the share price highlights the fact that the SFO action was largely priced in and more widely reflects the ‘misconduct discount’ which applies to the banking sector. Litigation, fines and compensation payments have sadly become part and parcel of the banking world, and while many of the alleged offences took place a long time ago the costs and reputational damage are still very much a live issue.”

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Barclays PLC190.36 GBX-0.02
Lloyds Banking Group PLC66.98 GBX-0.70
Royal Bank of Scotland Group (The) PLC262.12 GBX0.62
About Author Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk