Blain’s Morning Porridge 27th Nov 2024: Barclays is a metaphor for the decline of the City of London.
“Sheep Die. Cattle Die. But a Good Name lives on forever.”
Barclays has been fined £40mm for being “Reckless” in its dodgy 2008 capital funding programme. The judgement hides a multitude of sins and failures, especially in terms of probity and governance. It’s another chapter and illustration of how greed and avarice sank the once world-class UK financial industry over the last 40 years.
When I started working in the financial markets, way, way back nearly 40 years ago, most major firms in the City of London were British. The Americans were just arriving to the international markets – arrogant, overpaid, oversexed, and late as usual (I should not complain, Morgan Stanley gave me my start). The Europeans – what could they possibly know? These were the glory days of the Eurobond market. Big Hair. Stripey-Shirts. Double-Breasted Suits. Proper Lunches.
On my bookshelf I have the deal-book from one of my very first deals (as the junior to the junior): an A$50mm 14.5% 7-year Eurobond issued by the State Bank of New South Wales from January 1986. Morgan Stanley was the lead manager, and the participants include Hambros, Barings, Morgan Grenfell, Warburg and Cazenove. Remember them?
Over the fervid years that followed London’s Big Bang, UK firms were swamped, absorbed in fire-sales, sold for greed, and sunk by incompetence (most memorably Barings). While other nations banks thrived, British institutions shrunk. Today, British financial institutions – like so much else in the economy – are subscale and largely irrelevant. It’s not because we were bad bankers. We were not managed very well.
Today I write about “The Street” when I refer to the financial market community.. The Square Mile? What was that… you wonder… I wandered around The City last night after a conference. It was a pretty awful street-scene. Tradition is gone. Yesterday we learnt London’s 800-year-old meat and fish markets, Smithfields and Billingsgate are also for the chop.
Nothing lasts forever.
I started writing the Morning Porridge in 2007 – to give me something to discuss with clients each day as the Global Financial Crisis kicked off. I never kept all my early missives, but I do remember writing furiously about Barclays and its’ desperate attempts to raise capital to avoid collapse and an embarrassing bailout as banks tumbled in 2008.
Yesterday – a mere 16 years after the events, Barclays finally admitted it had made dodgy payments to Qatar to save them with a big capital injection. For that admission they received a £40mm fine. I don’t understand. That fine was less the £50mm fine they were appealing from 2 years ago? Let’s see…. they paid less for a further 2-years of denial, even though they finally confessed on the courtroom steps yesterday? Enough! Have done with it – lop off a few heads to atone for the reputational damage Barclays has done to the once-great City of London.
The story of how Barclays avoided an embarrassing government bailout, but destroyed its reputation by selling its financial soul in return for nearly £12 bln of new capital in a series of private placements through the Qatar Investment Authority and directly from Qatar’s Royal Family, is fascinating. (The deals were famously brokered by Amanda Stavely, who has since been nearly bankrupted after trying to get Barclays to pay her the agreed fees ever since.)
Despite trying to keep the terms secret, it soon became clear Barclays had agreed terms with Qatar that were substantially different from what it had been offering other investors, including what existing shareholders had been offered in terms of a rights issue. That was downright wrong and illegal. Under the terms of the dodgy deal Barclays not only paid Qatar enormous “fees” (aka kickbacks) of some £322 but also lent them the money to buy the stock! The effectively obscured the fact the bank was using Qatar as a route to finance itself. Doh.
What was the motive? Barclays no doubt thought they might be “last-man-standing” among the UK banks following the crisis (HSBC doesn’t count – to be brutally honest, it never has.) The management saw a fantastic opportunity for Barclays/themselves to weather the GDC, and swiftly become fantabuloulsy wealthy as Qatar’s in-house bank, and the only UK bank to survive! Not what happened.
The whole Barclays farrago was as dodgy as dodgy is. I wrote a number of furious comments in the early Morning Porridges and went on Bloomberg and the BBC to shout the case. I had been talking to another US firm about joining them in a senior role, but the prospective US boss told me I’d become a liability over the issue. I know many senior bankers, including friends who had mentored my career, were shocked by the case, but as one told me… “Say a little. Never say enough.”
The plods at the Serious Fraud Office and the FSA investigated, investigated some more, and eventually took the case to court a decade later, accusing senior executives of misleading the market, investors and the regulator by not disclosing the terms. It was a messy failure, with the individuals concerned being acquitted. City big-wigs (those who hadn’t been found out), were delighted, and expressed predicabley outraged fury at how shabbily their Barclays colleagues reputations had been treated while investigations rambled on. (Normally, you will find sympathy somewhere between shit and syphilis in a dictionary of City practice.)
Generally, the UK establishment was so shocked by the clear double dealing, it did what the UK establishment always does in times of crisis: looked the other way and tried to pretend it did not happen.
It did.
Barclay’s gained nothing from the deal. I may have avoided an embarrassing bailout and becoming part of the UK’s portfolio of financial carbunkles, but its reputation was destroyed by the naked self-dealing the case revealed. What is Barclays today? The major force it once thought itself in global markets? Nope. Barclays remains in the headlines, 16 years after the event as THE ONLY FIRM TO BE FINED FOLLOWING THE CRISIS OF 2008!
The consequence today is the UK has no financial institution of global scale.
Although I have great respect for the institutions of the financial regulatariat, and I very happy to sign the multiple papers, disclosures and pledges to work with and fully disclose information to the FCA that my roles in the City require me to do, I remain greatly concerned that the management and regulation of the UK financial markets is over-bureaucratised and less effective than it could be.
Only one thing really matters in finance. Trust – which comes with honesty. That should be achieved through good governance, and that the individuals at the top of any financial institution understand the difference between what is right and what is wrong, and the consequences of their actions. 16 years after Barclay’s stuffed their mouths with gold, its clear they made a terrible, terrible decision. We need better management, stronger regulators and a better will to make UK finance the powerhouse it once was.
Here endeth today’s rant. Off to do the day job…
Bill Blain
Author of the Morning Porridge, founder of Wind Shift Capital
