Barclays, Ex-Officials Face Qatar Fund Raising Fraud Charges

The U.K's Serious Fraud Office (SFO) has charged Barclays PLCBCS and its former top executives for the non-disclosure of fees paid to the Qatari investors related to fund raising during the height of 2008 financial crisis. The company's shares fell more than 3.3% on NYSE, following the release of the news.

While Barclays was able to avoid a government bailout during the financial crisis with the help of capital raised, other U.K.-based banks including The Royal Bank of Scotland Group plc RBS and Lloyds Banking Group plc LYG had to accept government bailout. Hence, Barclays was able to keep bonus and dividend payments intact.

Details & Charges Related to Fund Raising

Barclays had made a series of funding agreements with Qatar Holding LLC and Challenger Universal Ltd. The capital raising took place in June and Oct 2008.

The company was able to raise £7.3 billion ($10 billion) in June through the sale of its shares to Qatar. Later it emerged that a loan facility worth $3 billion was made available to Qatar by Barclays within a few months of the closure of the deal, thereby effectively lending the client the money to finance its own investments.

While there is nothing wrong in raising capital through sale of shares, Barclays failed to disclose the actual nature of the plan. The SFO findings revealed that an advisory service agreement (ASA) signed with Qatar at the time of the fundraisings in Jun 2008 was part of its prospectus, while the extension of the ASA for fundraising (mainly structured as debt deal on Qatari side) in October was not disclosed.

As part of ASA, Barclays paid £322 million ($406 million) to Qatari investors in order to facilitate the loan agreement.

The SFO thus charged former CEO John Varley, former Investment Banking Chairman Roger Jenkins, Barclays Wealth CEO Thomas Kalaris and Richard Boath, the former head of the bank's financial institutions group with conspiracy to commit fraud and illegal financial assistance. All the defendants will appear in Westminster Magistrates' Court on Jul 3.

Nonetheless, Barclays in a statement said it "is considering its position in relation to these developments."

What to Expect Now?

Barclays continues to struggle with its legacy business misconducts. The U.S. Department of Justice and the Securities and Exchange Commission are probing the company on similar allegations.

While several other global banks including Royal Bank of Scotland, Deutsche Bank AG DB and Credit Suisse Group AG have moved past their legacy business mishandlings by resolving the matters, Barclays has been facing several legal charges and investigations. Per the company's latest annual report, it still faces 21 regulatory probes and civil actions in the U.S. and the U.K.

While the financial impact of the above mentioned charges was not disclosed by Barclays, overall legal charges are expected to remain high. This is expected to continue hurting the company's profitability.

Given these legal and other concerns, Barclays' shares have lost 4% over the last one year as against 20.1% gain for the Zacks categorized Foreign Banks industry.

Currently, Barclays carries a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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