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Serious questions about the Abu Dhabi investments that saved Barclays

January 28, 2014 at 4:04 am

The 2008 financial crash brought down most of the UK’s banks, which were forced to turn to the government for huge cash hand-outs to avoid pulling the rest of the economy down with them. While giants Lloyds TSB and the Royal Bank of Scotland needed to be bailed out by the taxpayer, Barclays managed to avoid seeking government help.

But at what cost was the bank saved? Now, five years after the financial crisis, details are beginning to emerge about the investments that saved Barclays, specifically its dealings with Abu Dhabi.

Let’s start with what we already know. In October/November 2008, when the crisis was at its peak, Barclays somehow managed to secure £7bn worth of investment. This was coming mostly from the Gulf states of Abu Dhabi and Qatar. It was widely reported that half of the cash was coming from Sheikh Mansour, the deputy prime minister of the United Arab Emirates, member of the Abu Dhabi royal family, and owner of Manchester City football team.

However, several investigations by reporters have found that this was not actually what happened. In February this year, the BBC’s Panorama show looked into where the money came from and how much was disclosed, and concluded that it had not come from Sheikh Mansour, but from the Abu Dhabi government. Barclays admitted that it was told that the investor might change shortly before shareholders voted to approve the deal (on 24 November 2008), but did not pass this information on. It claims it disclosed the information the following day, but this disclosure, contained in three prospectuses, was deep within the small print. The phrasing was also misleading; it said that Sheikh Mansour “has arranged for his investment…to be funded by an Abu Dhabi governmental investment vehicle, which will become the indirect shareholder”. Sheikh Mansour wasn’t actually personally investing in the bank at all, but Barclays allowed the impression that he was to continue. Annual reports in both 2008 and 2009 both identified Sheikh Mansour as the investor. The bank has said this was “simply a drafting error”.

A two-year investigation by the magazine Euromoney, published this week, came to even more damning conclusions. Looking in detail at how the deal played out, it found that while Barclays was publicly playing up the importance of having an investor of Sheikh Mansour’s private wealth and standing – a way of building up market confidence in the bank – he was secretly hawking large chunks of his investment to other interested parties. Not only does this demonstrate, again, the illusory nature of market confidence, it also raises serious questions about sensitive financial information being disclosed to third parties.

The Euromoney piece also examines the question of £110 million which was paid to Sheikh Mansour by Barclays, a fee for his £3.5 billion investment. According to the investigation, these fees were arbitrarily distributed among Sheikh Mansour’s advisers. His fee was fully disclosed by the bank at the time, but it was not disclosed that it could be passed onto third parties.

Why does all of this matter? Firstly, if Sheikh Mansour, or those around him, profited personally, then it is possible that Barclays has breached anti-corruption laws aimed at preventing payments to government officials. The transactions took place through many different actors and entirely off-shore, so it is difficult to tell, but the involvement of the Abu Dhabi government is problematic. The warrants to buy shares were initially issues to a company that represented Sheikh Mansour’s financial interests, but were transferred through an Abu Dhabi government vehicle, to an official, and then back again. Despite these twists and turns, the Euromoney investigation certainly suggests some personal profit by members of the Abu Dhabi government, namely, Sheikh Mansour and his advisers.

Of course, making a profit from investments is the fundamental fabric of financial markets; advisers say that Sheikh Mansour has made a £3 billion profit from his initial investment of £3.5 billion. But rules about who you can pay fees to and who you can’t, and where money can come from, exist for a reason. James Carver, a lawyer with Transparency International, told the BBC in February: “You may be committing a crime, you may be paying a bribe if you have not got it straight as to which capacity the person you are dealing with is acting.”

The UK’s Serious Fraud Office and the Financial Services Authority are currently looking into Barclays’ commercial agreements with Qatari interests, although it does not appear it is doing the same for its dealings with Abu Dhabi. Meanwhile, the US Department of Justice is looking into whether Barclays relationships with third parties that help it to win or retain business are compliant with the US Foreign Corrupt Practices Act.

Those months in 2008 were a desperate time for the heads of the big banks, as markets fluctuated wildly and corporations collapsed every day. But in large part, the crash was precipitated by a lack of transparency, by shady dealings that circumvented the rules. This culture has not changed. If Barclays saved itself by misleading investors and breaking corruption rules, it should be held to account. As it stands, it simply adds to the impression that the banks are immune when it comes to the law.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.