Barclays Bank was last week hit with a lawsuit for nearly £1 billion (Dh5.24bn) by a remarkable 42-year-old woman named Amanda Staveley, described by the Financial Times as “a deal-maker best known for her Middle Eastern connections”.
Those connections are particularly strong in Abu Dhabi, where at the height of the British banking crisis in October 2008 she managed to persuade Sheikh Mansour bin Zayed to subscribe £3.5bn in new capital for the bank through the investment vehicle he chairs, International Petroleum Investment Company. That was half the money Barclays desperately needed to meet the Bank of England’s new capital requirements at the time – the rest was provided by Qatar’s Sheikh Hamad bin Jassim and other Qatari interests.
It turned out to be just about the most expensive money ever raised by a British bank. And the story is not over yet.
Ms Staveley was rumoured to have received a fee of US$40 million for her role, a significant enough sum for a few weeks’ work. Now it appears she feels she was entitled to a great deal more than that and is seeking damages of £720m to £950m, including interest, basically as her share of the exorbitant fees that were attached to the deal. The bank’s fees and arrangements with Qatar, which did not involve Ms Staveley, are the subject of a Serious Fraud Office (SFO) investigation in the UK, with the authorities alleging that Barclays agreed to pay a total of £322m over five years to get the Qataris to participate.
Ms Staveley claims that a so-called “parity clause” in the deal meant that all parties were due the same fee in return for investment – and she wants her share.
Barclays has dismissed the claim as “misconceived and without merit”, but the fact that it has surfaced at all and is headed for the courts casts a new light on this extraordinary little bit of banking history.
The story behind it all is this: after the collapse of Lehman Brothers (which Barclays desperately wanted to take over before it filed for bankruptcy) all the British banks were required to raise new capital. Barclays had that year raised £4.5bn from sovereign wealth funds including the Qatar Investment Authority, then headed by the ubiquitous Sheikh Hamad, but it was not enough. By September, as the crisis deepened, Gordon Brown, then the prime minister, ordered all the British banks to raise more – or take state money.
John Varley, the chief executive of Barclays, and Bob Diamond, its head of investment banking, found the concept of “part-nationalisation”, as they called it, repugnant and decided they would once again tap their Middle East sources. Mr Varley sent Roger Jenkins, Barclays’ highest-paid executive at the time (he was said to have earned between £40m and £75m in 2005), to go back and get it. Mr Jenkins roped in Ms Staveley for the Abu Dhabi bit, and within days they had commitments for £7bn.
On Friday, October 11, 2008, all the British banks were summoned to the Treasury and presented with new and tougher capital requirements that would have to be met before the markets opened on Monday morning. The markets were closed and no bank in the world could raise a penny, but the UK government indicated it had earmarked £50bn for new capital that it was standing by to inject. When Stephen Green of HSBC protested that his bank did not need new capital and was a lender into the system, Brown personally called him and he agreed to transfer a token £700m from one of its Far Eastern pools of cash. Standard Chartered did the same.
Lloyds, HBOS and RBS all spent the weekend in the Treasury thrashing out the terms of their new state money. Lloyds got £5.5bn, HBOS £12bn and RBS another £20bn (although more would be needed later). They all thought Barclays was in the building too, and only discovered the truth on Monday morning when Barclays triumphantly announced that it had raised its new capital from “private sources” and would not be taking the queen’s shilling. “We’ve made the decision,” said Mr Varley that morning, “because of the confidence we have in our capital, and we don’t need to use the government facility”.
It was expensive money – a 40 per cent discount on the market price as opposed to the 8.5 per cent discount the government set for the other banks. But Mr Varley, although forced to suspend his dividend, felt it was worth it to have Barclays free of the stigma attached to the other banks (which still adheres to them). Mr Varley openly jeered at his less-fortunate rivals and got on with his deal to buy what remained of Lehman. Lloyds, which took over HBOS, and RBS are still trying to get out from under the state mantle.
But the rights issue has come back to haunt Barclays. It has already paid a fine of £50m to the UK regulators, and the SFO has interviewed some of its top executives, including Mr Varley and Mr Diamond. Mr Varley lost his job to Mr Diamond, who also soon departed. The shares have almost halved in the past year and the new man, Jes Staley, wrestles with a mountain of problems. Ms Staveley, who now lives in Dubai, is not the least among those problems.
Ivan Fallon is a former business editor of The Sunday Times and the author of Black Horse Ride: The Inside Story of Lloyds and the Financial Crisis