The Barclays capital raisings of 2008 remain shrouded in mystery and intrigue, and are the subject of investigation by both the UK’sSerious Fraud Office (SFO)and the US Department of Justice.
The investigation of the UK's SFO into the Barclays-Qatar capital raising in 2008 has reportedly stepped up a notch. Bob Diamond, John Varley, Chris Lucas and other senior management at Barclays at the time of the event are set to be questioned under caution, according to the Financial Times.
Below is a review of the events that led to this point in the investigation.
Barclays sought to raise capital privately, avoiding direct equity investment from the UK government, which was offered to boost its capital ratio. Barclays believed that "maintaining its independence from government was in the best interests of its shareholders".
Barclays attempted to raise £4.5 billion through a non-traditional rights issue; existing shareholders had the opportunity to buy shares. Only 19% of the offered shares were purchased. The remaining shares were allocated to investors, including Sumitomo Mitsui Banking Corporation, China Development Bank, Temasek, Qatar Investment Authority and Challenger, an organization representing Qatari prime minister Sheikh Hamad bin Jassim bin Jabr Al-Thani.
On September 17, Barclays announced its agreement to purchase Lehman Brothers' investment banking and trading divisions. On September 18, it successfully placed 226 million shares, raising approximately £700 million to give Barclays the capital necessary for the Lehman acquisition.
Barclays launched a further round of capital raising, approved by special resolution on November 24, as part of its overall plan to achieve higher capital targets set by the FSA to ensure it would remain independent, and raised £7 billion from investors from Abu Dhabi and Qatar.
Qatar Holding's stake in Barclays rose to 12.7%. Sheikh Mansour Bin Zayed Al Nahyan, chairman of the International Petroleum Investment Company (IPIC), invested up to £4.75 billion in instruments that could give him a 16% stake. Goldman acted as an adviser to Sheikh Mansour.
It was initially claimed Sheikh Mansour's stake was a personal investment but Barclays later cited “a drafting error" in documents and explained that the securities were, in fact, held by state-owned IPIC.
Existing Barclays shareholders complained they were not offered full pre-emption rights in this round of capital raising, even threatening to revolt at the extraordinary meeting. Sheikh Mansour and Qatar Holding agreed to open up £500 million of their new holdings of reserve capital instruments for clawback. Existing investors, their confidence in Barclays boosted by the Middle Eastern money, now took this up.
IPIC sold 1.3 billion Barclays shares (half its investment), netting profits of £1.5 billion. Barclays share price fell 14%.
Qatar Holding sold a 3.5% stake worth £1.4 billion on October 20. Barclays’ share price was down 20% in the month following Qatar Holding's sale. Qatar Holding still remained one of the bank’s largest shareholders, (even after a further sale of warrants worth around £750 million in November 2012).
Barclays revealed that the FSA was investigating whether the bank adequately disclosed fees paid to Qatar Investment Authority.
The Serious Fraud Office announced an investigation into the Middle East capital raising over "payments under certain commercial agreements" between the bank and Qatar Holding LLC, part of the Qatari sovereign wealth fund, the Qatar Investment Authority.
Barclays announced that the “commissions, fees and expenses” for the October/November 2008 capital raising amounted to £300 million, payable primarily to Qatar Holding (£66 million), Challenger and HH Sheikh Mansour bin Zayed Al Nahyan.
FSA announced an expansion of the investigation into the Barclays-Qatar deal, focusing on the disclosure surrounding the ownership of the securities in the bank.
The results of a near two-year investigation by Euromoney into Abu Dhabi investment in Barclays in October/November 2008 are published this month. Our story answers a number of questions about what happened to £110 million ($170 million) in fees paid by Barclays ostensibly to Sheikh Mansour for his £3.5 billion investment. It is a remarkable story of one of the most important transactions of the financial crisis, which helped Barclays avoid the need for a bailout from the UK government. But it still only tells some of the story.