Another Big British Bank Lands in Deep Trouble

Barclays faces a criminal trial in the UK. Last week it was RBS. 

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Now, it’s the UK’s second-largest bank Barclays’ turn to face the music. A week ago, it was the UK’s third-largest bank, state-owned Royal Bank of Scotland, that faced one of its biggest scandal yet after whistle-blowers accused the bank of systematically forging customer signatures. RBS also faces the prospect of a multi-billion dollar fine for the way it sold residential mortgage-backed securities during the lead up to the Financial Crisis.

On Monday, the UK’s Serious Fraud Office (SFO) announced that it was charging Barclays for a second time over a deeply suspicious £2.2 billion ($3 billion) loan it issued in 2008 to Qatar. To avoid a government bailout, Barclays took a £12 billion loan from Qatar Holdings, which is owned by the state of Qatar. Under that deal, Barclays loaned £2.3 billion back to Qatar Holdings, which allegedly was then used to buy shares in Barclays. If true, it would amount to “unlawful financial assistance,” the SFO says.

Barclays is the first British bank to face a criminal trial in the UK related to its conduct during the Financial Crisis. The fresh charge of “unlawful financial assistance” comes after charges were brought against Barclays’ holding company and four former executives last July.

Founded in 1690, Barclays is one of the world’s oldest banks. As the Financial Times notes, the original lender was established on a bedrock of honesty, integrity and plain dealing — a reflection of the sober values of the Quaker families that founded the bank. Today, things could not be more different. The bank now boasts one of the longest rap sheets of any bank in Europe, which — given the pedigree of the local competition, including Deutsche Bank, HSBC, RBS, UBS, BNP and Credit Suisse — is no mean feat.

The myriad crimes for which it has been fined in the last ten years include manipulating electricity prices in the US and conspiracy to rig Libor rates, foreign exchange rates and a benchmark interest rate used in swaps and derivatives. But it’s the loan to Qatar that could end up doing the most harm. Lending money to bank customers so that they can then buy shares that the bank issues to raise capital is fraud of the most blatant sort.

By choosing to contest the charges Barclays runs the risk, if found guilty, of being stripped of key banking licenses. According to the FT, the fact that it’s willing to run this risk means it “must reckon no regulator would take such drastic action as a result of a one-off event in the exceptional circumstances of the financial crisis.”

Considering the paucity of punitive actions taken against the world’s biggest banks or their top executives — beyond the hundreds of billions they’ve been charged in fines, the burden of which was ultimately shouldered by the banks’ shareholders — you can hardly blame Barclays for calling the SFO’s bluff.

Judging by the reaction of the bank’s shares, the markets seem to agree. The stock ended Monday 0.63% higher and was down a barely perceptible 0.17% on Tuesday.

But the long term trend is a lot less propitious. In the last two years Barclays has under performed the Stoxx Europe 600 Banks by an impressive 16% — an achievement only bettered by one other European lender, the perennially afflicted Deutsche Bank. Its stock has dropped 8% since January 26 alone. In 2017 it tumbled 9% — the most of any large European lender — after three consecutive quarters of disappointing trading results raised questions about managers’ ability to revive earnings at the investment bank.

Now, Barclays has to find a way of hiving off its investment bank in order to satisfy new regulations aimed at insulating day-to-day retail customers from problems that may emerge in risk-prone investment divisions. Unlike their counterparts in the EU and the US, and much to the chagrin of banks like Barclays, the UK government and Bank of England seem serious about ring-fencing investment banking activities (derivatives, debt and equity underwriting) from high street bank operations (mortgages, retail and small business loans and deposits, overdrafts…).

There is a risk, however, that implementation of the new rules could be disruptive, especially if it coincides with a disorderly Brexit. “As with any big infrastructure project, there is some potential for disruption to everyday activities as new group structures are moved into place and new ways of operating are brought online,” said James Proudman, the Bank of England’s executive director for supervision of deposit takers.

In light of the acute challenges the UK banking industry faces in the next 12-18 months, the chances of Barclays, a global systemically important bank (G-SIB), being stripped of its banking license for crimes it committed 10 years ago in order to avoid being bailed out with taxpayer funds are infinitesimally small. If such a thing were to happen, it would have huge reverberations not just in the UK but across the entire global economy.

Fortunately, stripping the bank of its banking license is not the only way for justice to be served. There’s also the customary practice of punishing the people that actually committed the crime, but this being the banking industry, the chances of that happening are even tinier than infinitesimally small, especially when the accused include John Varley, Barclays’ former CEO, and Roger Jenkins, the former Barclays head of investment banking who was once the highest paid banker in England.

At least a small measure of grim comfort can be drawn from the fact that at long last, former C-suite executives of one of the world’s biggest banks will soon be sitting in the dock. It’s a precedence that’s long overdue. By Don Quijones.

Small-business customers suffered most at the hands of RBS. Read…  Bailed-Out RBS Systemically Forged Customer Signatures: Whistle-Blowers

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  26 comments for “Another Big British Bank Lands in Deep Trouble

  1. Paulo
    Feb 13, 2018 at 10:53 pm

    If they move out ala brexit excuse, will they still be able to offer investment banking services in Britain considering everything is online these days?

    It is all just so blatant. Some serious penalties need to be enacted against these guys. Maybe by vigilantes or disgruntled investors?

    I just read a synopsis of a new book, called McMafia. They refer to themselves as ‘just bankers’. It looks like a good angry read.

    • Joan of Arc
      Feb 14, 2018 at 2:02 am

      Cream floats to the top, but during QE, rot floats to the top and stays there.

    • Steve clayton
      Feb 14, 2018 at 10:51 am

      Just had the TV series on bbc of McMafia recently Paulo.

  2. pogohere
    Feb 13, 2018 at 11:40 pm

    Now here’s an understatement:

    “In light of the acute challenges the UK banking industry faces in the next 12-18 months, the chances of Barclays, a global systemically important bank (G-SIB), being stripped of its banking license for crimes it committed 10 years ago in order to avoid being bailed out with taxpayer funds are infinitesimally small.”

    As a “systemically important bank” Barclays is actually supervised by the Bank for International Settlements, a sovereign entity, and the BIS will decide whether or not Barclays has to cough up anything for this fraud.

    • Joan of Arc
      Feb 14, 2018 at 2:05 am

      Unlike Lehman, Barclays is too big to fail.

      • walter map
        Feb 14, 2018 at 9:14 am

        “Too big to fail” is fear-mongering propaganda. It’s their way of saying they’re holding the economy hostage and will crash it unless their vicious piracies are countenanced.

        In truth such corporations are too dangerous to allow to exist, and should have been taxed to compensate for the economic costs of their eventual dissolution. Those costs would have been less than the cost of enabling their continuance, but unfortunately it’s too late. The rich have been destroying the planet and it is no longer possible to prevent them from succeeding:

        http://www.truth-out.org/archive/item/69326:how-the-rich-are-destroying-the-planet

        I used to advise people to save themselves but gave up when it became clear there is no longer any way to do that.

        “Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.”

        – John Maynard Keynes

        • robt
          Feb 14, 2018 at 1:22 pm

          The best argument against democracy is a five-minute conversation with the average voter.
          – Winston Churchill

  3. Rates
    Feb 14, 2018 at 1:19 am

    Time to fold Barclays into RBS and call it Royal Banking Scandal.

    Taxpayer can save money by dealing with one single entity. Just like people like Single Payer for healthcare, they will love Single Suer for banks.

  4. walter map
    Feb 14, 2018 at 8:48 am

    This is what people get for rejecting my advice to reduce the banks to their proper size and role as public utilities: they turn into monsters that eat entire countries and force the surviving millions into misery.

    Little setbacks like these gigantic legal scandals mean they won’t make plan for a couple of quarters but really won’t trouble them much. No one will end up in a dungeon or with their head on a pike. Mostly it’ll remind them that cost controls shouldn’t lead them to skimp on political corruption.

  5. raxadian
    Feb 14, 2018 at 9:12 am

    Steal a chicken, go to jail, steal a billion chickens…

  6. Steve clayton
    Feb 14, 2018 at 10:55 am

    I dont understand the full details ref Barclays but rather than going for a government bail out around 2008 they privately did it. I don’t see what the issue is. I only wish RBS and Lloyds had done the same thing.

    • Feb 14, 2018 at 11:56 am

      The bank made a big loan to an entity that then infused this money as equity capital back into the bank. In other words Barclays converted its own money (the loan) into Tier 1 capital. In other words, it increased its Tier 1 capital by using thin air but dressed it up via this loan arrangement to make it look real. That’s a classic bank fraud.

      • Steve clayton
        Feb 14, 2018 at 2:35 pm

        Aren’t the European banks doing a form of this ‘legally currently through European funding? Not writing off sofferenze is fraud also.

  7. doug
    Feb 14, 2018 at 11:35 am

    Walter, thanks for the cogent comments, and the JMK quote.

    I wonder if we need a new word other than ‘criminal’ trial. Criminals, if guilty go to jail, and none of these banks are going to jail, nor are their major officers.

    All that happens(for now) is they pay a fine as the cost of doing (quite profitable) business as usual. One day heads on a pike will be the call. I look forward to the reckoning should I live long enough.

  8. Feb 14, 2018 at 11:55 am

    Kickbacks are the definition of “Racketeering.”

  9. cdr
    Feb 14, 2018 at 3:26 pm

    Nice to see.

    Years ago, I noticed that England was a great place for high finance because the rules and the oversight looked very very weak, past the point of openly corrupt. I’m not an expert on the rules. I just read the signs from those who shrieked and smiled when anyone noticed how lax things were. If something financially crooked was going down over there, the Brits were in the middle of it.

    While a lot of those who stole rampantly will get away with it, I’m happy to see the Brits are finally showing an interest in running an honest house. Hopefully, they will continue in this direction. Not holding my breath, but hoping anyway.

  10. William Smith
    Feb 14, 2018 at 5:51 pm

    The book “Rogue Trader” written by Nick Leeson who brought down Barings bank in 1995 is well worth a read. Yet another British bank beginning with “B” and doing naughty things. He goes well into the mindset and culture in the bank that lead to the scandal and subsequent collapse. Seems like nothing at all has changed since 1995 when Barings deleted itself. No regulation, no oversight, no nothing! I bet that if you just change the names, that book could be a template for the dealings at just about any bank today and well into the foreseeable future.

    • MD
      Feb 15, 2018 at 3:33 am

      Well that’s what happens when you stop making stuff – the UK has de-industrialized post-WWII to a greater extent than any other ‘first world’ nation, thanks to neoliberalism – and turn to financial specualtion in order to fund your country’s future…

      You get a credit-fuelled boom for a while…and then you become Spain or Italy or [insert other post-colonial economic basket-case country here].

      Tourism, coffee shops, hair salons and real estate speculation. Oh – and tattoo parlors so we can make sure everyone knows that we’re ‘individuals’. Like the Chinese give a damn about our ‘individuality’, as they carry on taking over the world (by making stuff…).

  11. Javert Chip
    Feb 14, 2018 at 7:31 pm

    At the risk of appearing to defend the bank (I’m not) – WHY DOES IT TAKE 10-YEARS FOR REGULATORS TO FIGURE THIS OUT?

    At the risk of appearing to pre-judge the bank (which I may be doing): done properly, it is possible to liquidate a “to big to fail” bank.

    1) Barclays is currently not in existential financial stress
    2) Barclays has about 130,000 employees in 40 countries around the world

    If bank is found to be criminal:

    1) Separate & sell all retail deposit, branches and staff to other (healthy) banks. NOTE: no layoffs of retail staff & retail management). THE RETAIL STAFF DID NOT CAUSE THIS QATAR PROBLEM AND SHOULD NOT BE PUNISHED. This probably accounts for 60-70% of Barclays staff.
    2) Separate & sell various commercial banking units (trust, commercial lending, credit card, , merchant services, et al.). This probably accounts for 10-20% of Barclays staff.
    3) Terminate all executive & senior managers, investment banking, all staff functions (HR, legal, audit, CFO & staff, et al.). This probably accounts for 20-25% of Barclays staff – THS IS WHERE INCOMPETENT MANAGEMENT & SPECTACULARLY STUPID BANKING DECISIONS LURKS.

    No judicial process could ever convict thousands of incompetent but complicit managers. Simply sell the bank out from underneath them.

    If this was done just once, banking bad behavior would be severely diminished.

    • fajensen
      Feb 15, 2018 at 2:26 am

      WHY DOES IT TAKE 10-YEARS FOR REGULATORS TO FIGURE THIS OUT?

      I am not too familiar with the workings of British legislation. In Denmark the “Humphrey Appleby’s” on the regulator side would clearly do this to “run out the clock” on the prosecution of the crimes.

      PS:
      The 10 years is too round a number – possibly there is some internal disagreements on this, if it is the case, being signalled?

      • Steve clayton
        Feb 15, 2018 at 1:14 pm

        Regulators are full of ex bankers, that’s why it takes ten years.

    • MD
      Feb 15, 2018 at 3:36 am

      Ah but banking ‘bad behaviour’ is:

      i) not ‘bad behaviour’ in fact but MISTAKES – as it is with politicians now
      ii) generally good for short-term economic growth – the only type politicians are interested in to get them to the next election.

      So here we are.

    • Steve clayton
      Feb 15, 2018 at 1:12 pm

      I totally agree with your sentiments Javert. With the rbs GRG scandal I wanted every employee within that division sacked unfortunately a lot of people have gone into departments within the bank or have left to avoid the issues they were directly involved.

  12. Jason
    Feb 15, 2018 at 5:57 am

    Why is there no mention of the auditors?

  13. Kiers
    Feb 15, 2018 at 11:43 am

    my bank puts a *HOLD* on deposits over (get this…) $5K, for A WEEK, because, you know, they say i smell smarmy…..then they tell me to march to the corner and salute! Then they check out the electrons where the money is comign from just to make sure every electron is up to snuff….

    but THEY can forge signatures no problem. just management incentives really. pure Harvard

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