Barclays fundraising ‘about saving jobs’

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Former Barclays boss Bob Diamond wanted to raise funds privately in the financial crisis to preserve his own job, a court has heard.

Mr Diamond reportedly told a meeting “This is all about saving jobs – mine and John’s”, referring to then chief executive John Varley.

The quote was recalled by former Barclays executive Richard Boath, currently on trial at Southwark Crown Court together with Mr Varley.

In an interview with the Serious Fraud Office (SFO) played to the court, Mr Boath related Mr Diamond’s statement in June 2008.

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Mr Boath told the SFO Mr Diamond was concerned he might have to leave his job if the bank raised funds publicly, for example through a “rights issue”. In a rights issue, existing shareholders, many of them large City institutions, are offered the right to buy new shares in exchange for handing over new funds.

But, Mr Boath told the SFO, Bob Diamond was opposed to going to institutions. In that event brokers would be required to check the bank’s marking of its trading positions [the value of its holdings of shares and bonds].

“There was a meeting… In that meeting Bob said – this is all about saving jobs – it’s mine and John’s.

‘Drains-up’

“What he meant was Bob had consistently said – ‘no, we don’t need capital’.

“The gossip in the market was that we hadn’t marked our positions as conservatively as other people and that if we couldn’t raise capital in this process the only alternative would be a rights issue…and the brokers would come in and do their due diligence – a “drains-up” – and we’d have to defend our position.

“What Bob said about saving jobs was that in those circumstances they [Bob Diamond and John Varley] would have to go,” Mr Boath told the SFO in 2016.

A recording of Mr Boath’s interview was played at the trial of John Varley, Roger Jenkins, Richard Boath and Tom Kolaris. They are accused of conspiracy to commit fraud by false representation. They deny the charges.

The charges relate to two fund-raising efforts in June 2008 and October 2008, when the bank raised £12bn, mostly from private investors including Qatar Holdings, a company owned by the state of Qatar.

The Serious Fraud Office alleges that defendants misled shareholders by paying Qatari companies £322m in secret fees for “Advisory Services Agreements” that were not properly disclosed.

The SFO has alleged that the agreements were in fact “a disguised mechanism for providing extra fees to the Qataris in a way in which defendants knew and intended would not be disclosed”.

‘Air cover’

Today the court heard how Mr Boath told the SFO: “The pressure to get the deal done was intense from the very beginning.”

Bankers senior to Mr Boath were communicating about the deal, he said, including Mr Diamond and Mr Varley. The bank’s most senior lawyers, Mark Harding and Judith Shepherd, repeatedly advised that the bank could pay fees for services if it received sufficient value for those services, he told the SFO.

Mr Boath described in his SFO interview how he was asked in the first capital raising in June by his senior colleague Roger Jenkins to calculate the size of an additional fee. The Qataris had demanded a commission 1.75% higher than what was paid to other investors.

This amount – £42m – was to secure the Qataris’ participation in the capital raising, Mr Boath told the SFO. When this was discussed the services to be paid for had not yet been determined.

Mr Boath described how he sought “air cover” – the reassurance of knowing lawyers and people senior to him knew the issues and had discussed them.

‘Blindingly obvious’

“What I was concerned about was, one – is this legal? And two – how are we going to deal with this if other investors discover this?

“Firstly why don’t we tell them [the Qataris] to get stuffed? And two – do the senior – does Varley and Bob and Mark – have they all read this undertaking in the subscription agreement that everyone is getting the same… from where I sat that’s a fairly brave thing to say – cos I wouldn’t be thanked for it.

“The conversation that then ensued was whether that was something the bank could do – could reasonably do – could legally do – and in that conversation Mark Harding repeatedly said that the bank was able to enter an arrangement like that provided it got value for services,” Mr Boath told the SFO.

“It was clear for what I recollect that the request had come from the Qataris for a higher fee. The mechanism – the ASA was a mechanism to pay an additional fee and satisfy their demand for an additional fee. That was blindingly obvious from the call and everybody on that call understood that.”

There is no suggestion of wrongdoing on the part of Qatar.

The trial continues.