Barclays, Quail and the trial over the 2008 Qatar deal

IFR 2322 - 29 Feb 2020 - 06 Mar 2020
13 min read
EMEA, Emerging Markets, Asia
Steve Slater

When 11 members of the jury got stuck in an elevator between floors at London's famous Old Bailey courthouse last week it was an ominous sign for prosecutors in the trial of former Barclays bankers over a fundraising 12 years ago: the case appeared stuck.

And so it proved on Friday. The three former Barclays executives were acquitted of fraud related to the British bank's £4bn fundraising with Qatar investors in 2008.

The three defendants – Roger Jenkins, Tom Kalaris and Richard Boath – were cleared by a jury after less than five hours of deliberations.

The court case had lasted more than four months, so it was an abrupt end to the trial of the most senior bankers put on trial in Britain for events that took place during the financial crisis.

"It’s been a long time. I always said I had legal advice throughout,” Jenkins told IFR after the decision outside the court. "I’m looking forward to getting back to continuing my career."

He later said in a statement that he always knew he did nothing wrong in 2008 and had "lived under a cloud" over his private and business life since the investigations began eight years ago.

Jenkins was head of Middle East at Barclays’ investment bank at the time of the fundraising and was the gatekeeper for the relationship with Qatar; Kalaris was CEO of Barclays’ wealth management; and Boath was capital head of the European financials group.

Boath said he was "delighted and relieved" with the verdict.

"The SFO case was an invention and should never have been brought," Boath said, adding that he had been cleared by Britain's financial regulator in July 2017.

Britain's Serious Fraud Office accused the three men of arranging for Barclays to pay £322m in secret fees to Qatar as part of its investment in the bank. It said former Barclays finance director Chris Lucas would also have been charged, but he was too ill to stand trial.

At the heart of the case were two advisory service agreements, or ASAs, signed between Barclays and Qatari investors in June and October 2008. They were agreed alongside investments by Qatar in the bank's fundraisings.

"There were no real services provided as a result of the agreements," said Edward Brown, leading counsel for the prosecution.

But the defendants' lawyers said they were genuine agreements to help win lucrative business for Barclays. The bank wanted to win business from rich potential Middle East clients from rivals including Credit Suisse and Goldman Sachs.

"They [Qatari investors] had extraordinary amounts of wealth," John Kelsey-Fry, lawyer for Jenkins, said at the trial.

"They wanted to invest billions and billion of pounds. That investment required banks. So they were going to spend a lot of money for a long time, from which the banks involved could realise significant profit."

Kelsey-Fry said Credit Suisse had been the Qataris' preferred bank for the previous 20 years. Goldman Sachs had also done deals there. Barclays wanted some of that action.

In October 2008, for example, Qatar offered to Barclays an US$8bn oil and gas hedging contract called "Tinbac" that it had previously arranged through Goldman. That could have been worth US$250m in fees, Kelsey-Fry said.

Jenkins said in court that 12 or 13 "opportunities" arose for Barclays in the months following the first ASA.

"I'm quite certain I explained the concept – we are going to be in a preferred position and we are going to get value for money and it could come in many different forms," Jenkins said in court. "Services is the wrong word – it was opportunities."

The second ASA signed in October 2008 was little more than one page, but it outlined several areas where Barclays intended to benefit, including developing business in the Middle East, introducing potential investors, expanding in commodities, getting referrals in the oil and gas industry, and opportunities in infrastructure advisory and financing.

"The ASA was not a sham," Ian Winter, lawyer for Tom Kalaris, said in court. "It is abundantly clear that the lawyers were not only OK with the use of the ASA to provide value, but were instrumental in its implementation, and consistently advised the defendants that it was a lawful way to proceed."


Details relayed in court showed a lengthy courtship between Barclays and several potential investors as global financial markets unravelled and banks scrambled to find investment from wealthy backers.

Barclays adopted a bird theme to refer to its potential investors, as shown by codenames used in conversations and documents seen in court. Barclays was "Raven", Qatar was "Quail" and the June 2008 fundraising was "Project Heron".

The other banks investing in the cashcalls were "Crane", "Penguin" and "Bluebird".

Jenkins, who was known as "Big Dog" at the bank, told the court he first met Qatar's former prime minister Sheikh Hamad bin Jassim bin Jaber al-Thani in July 2007 in Sardinia.

He said the two men had dinner on a boat on the Italian island and met subsequently on the French Riviera at Cannes, in Los Angeles, Doha and Jenkins' apartment in London to discuss business deals in retail, real estate and banks as their relationship developed.

But as financial markets worsened in 2008, Barclays' need for outside investors intensified. Indeed, the court heard that in June 2008 Boath said if Qatar didn't come up with the money then Barclays was "fucked".

The prosecution said the Qataris knew they were in a strong position and "drove a very hard bargain" to agree to invest, and wanted to be paid a 3.75% commission for a £2bn investment in June 2008, compared with the 1.5% Barclays was paying other investors for underwriting.

The prosecution said Barclays agreed to pay Qatar 3.25%, but the bank could not disclose that to other investors so bankers scrambled to find a way to structure it.

The bank agreed an ASA. Barclays disclosed the ASA in its June 2008 capital-raising prospectus, but not the payment of £42m. When Qatar invested again in October 2008, another ASA was signed. Barclays did not disclose the existence of the second ASA, including the payment of £280m to Qatar.

The defence lawyers said Barclays' in-house and external lawyers approved the ASAs throughout the process.

"The unequivocal, repeated advice was that this was legitimate provided the ASA was a genuine contract for the provision of benefits to Barclays," Kelsey-Fry said.

But prosecutors told the jury the defendants were worried they were breaking the law and had even joked about the threat of jail.

"None of us wants to go to jail here . . . the food sucks and the sex is worse," Kalaris said on a call with Boath in June 2008 as they discussed the structure of the deal.


The money raised in 2008 allowed Barclays to avert a state bailout, unlike Royal Bank of Scotland and Lloyds Banking Group, which had to be rescued with taxpayer cash.

"It is no exaggeration to say that Barclays' future as an independent bank was in jeopardy in September and October of 2008," SFO prosecution lawyer Brown said.

Brown said the Barclays board was determined to avoid taking a government "bail-out" because that would have restricted strategic flexibility. He said the former bankers were also incentivised to get a deal to secure lucrative bonuses.

Prosecutors said Jenkins was paid £39.5m in 2007, and was promised a bonus of £25m for securing the two fundraisings.

But Jenkins reacted angrily to that accusation.

"I had a heart attack on August 5 2008 and I was instructed to get out of my bed, leave my family on August 29 and come back to work to help this bank survive," the 64-year-old Jenkins told the jury.


The acquittal of the three former bankers will not fully close the door on events from the fundraising 12 years ago. In fact, it will restart some other investigations and court cases related to the 2008 fundraising, which have been on hold.

UK regulators stepped up their investigations into the fundraisings in 2012 and the Financial Conduct Authority issued a warning notice a year later against Barclays, saying the bank had "acted recklessly" and breached disclosure rules. It planned to fine Barclays £50m, but Barclays contested the findings and the FCA's action was stayed until the conclusion of the SFO criminal trial.

Barclays also faces a civil case from PCP Capital Partners, which is seeking £1.6bn in damages. PCP founder Amanda Staveley worked with Abu Dhabi investors in 2008 and alleges other investors missed out on the side deals offered to Qatar. The PCP case was postponed in 2017, pending the conclusion of the SFO case. Barclays is defending the claim and said this month it expects the trial to start in June.

Boath is also suing Barclays for unfair dismissal, claiming he was fired for what he told the SFO. That employment tribunal was put on hold in 2017, and is expected to resume.

£50m COSTS?

The SFO's defeat is another costly blow for the organisation and raises questions about its future.

"I am conscious that the SFO plays an important role in the ethical functioning of our capital markets, however it is equally important that they are properly resourced to act fairly and expeditiously," Jenkins said after Friday's verdict.

Legal costs related to the case and years of investigations have swelled, and could exceed £50m, sources said. The SFO on Friday estimated its costs for the investigation and trial at £9m–£10m.

The defendants' costs are expected to have been covered by Barclays, or the insurance cover the bank takes out for its employees. The bank declined to comment.

Former Barclays chief executive John Varley was previously accused of fraud by the SFO and was acquitted by a judge following a previous trial last year. Fraud charges against Barclays itself were dismissed in 2018.

"The SFO has been dogged in its pursuit of individuals and that pursuit has ended in failure," said Aziz Rahman at legal specialists Rahman Ravelli. "There is the possibility that this could reshape the SFO’s thinking when it comes to dealing with individuals after the company has already been dealt with."

The SFO said its prosecution decisions were based on the evidence available. "Wherever our evidential and public interest tests are met, we will always endeavour to bring this before a court," an SFO spokesperson said.


Qatar was not accused of any wrongdoing and remains the second biggest investor in Barclays, with a 5.9% stake worth £1.7bn at the current share price of 168p.

Qatar is likely to have made money on its pair of investments in Barclays in 2008, even though it will have lost money on the shares it bought, which were at an average price of 218p.

But it did far better on other instruments bought in the complex October 2008 fundraising, including reserve capital instruments, warrants and advisory fees.

The Qatar investors are likely to have made about £2.7bn from the investments, according to calculations by IFR. That does not include the £322m paid in the ASAs.

The RCIs paying 14% annual interest for more than 10 years brought in about £1.8bn; it made a £770m profit from monetising the value of its warrants in the first three years; and it was paid £86m in commission and fees on the deal.

Collapse in Barclays shares