So is Barclays Bank effectively being prosecuted for having refused a tax funded state bailout in 2008? Perhaps I misunderstand something but that sure as hell looks like what is happening here, at least when I read between the lines. Am I getting this completely wrong?
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So is Barclays Bank effectively being prosecuted for refusing a tax funded state bailout?June 20th, 2017 |
 27 comments to So is Barclays Bank effectively being prosecuted for refusing a tax funded state bailout? |
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I think you are correct Perry.
Whereas the head of Lloyds – who deliberately made the bank insolvent AFTER the crash (by buying HBOS as a favour to his pal Prime Minister Brown) was honoured.
People who save their shareholders are punished, people who wipe our shareholder value (for their political mates) are honoured – welcome to modern Britain.
It’s hard to say. But from my far distant memories of hearing lawyers explain the mysteries of “unlawful financial assistance”, everything is unlawful financial assistance, not excluding sitting quietly on the beach. It’s one of those 1984 crimes that they can get you on whatever you do. Or don’t do.
When I first read about this, I was thinking that this was just your basic securities fraud – market manipulation – in which Barclays attempted to foster the illusion of demand for their stock by predicating the transfer of money to Qatar upon a purchase of its own stock with part of that money. That would be clearly illegal here in the US under our current laws (but then, what wouldn’t?)
But, upon further reading, I get the feeling that the news stories are backing off of that description – as if they can’t figure out what’s being charged either.
That certainly looks like what is happening.
Lending money to Qatar, which is then used to inject capital into the bank (by buying its shares) actually does increase the bank’s capital, thanks to the manner in which banks actually make loans (creating money in the process). At the end of the day its balance sheet has grown (in the amount of the loan) but so has its shareholders’ equity. One would think that was basically a wash, but since it’s sovereign debt the capital a bank has to hold in order to support it is essentially zero, so its risk-based capital ratio improves. And from an economic perspective the bank is better off, too: it has more equity capital at risk, and the debt is an absolute obligation of Qatar. I have difficulty seeing why this should be viewed as unlawful, other than as a means of punishing Barclays for having the temerity to refuse government assistance. If this ever actually goes to court I hope Barclay’s can demand a jury trial; the government will have great difficulty explaining to jurors just why this was a criminal offense, especially in the middle of the financial crisis.
For what it’s worth, my recollection is that at about that same time, after Lehman Brothers had failed, Bear Stearns was collapsing, and the US Treasury was terrified that the entire financial system was in peril, Treasury Secretary Hank Paulson summoned the heads of all major US banks into a meeting and wouldn’t allow them to leave until all had agreed to accept a government bailout. There were several which didn’t need or want the bailout (the terms were outrageous), but some banks really were on the edge of failure and Paulson didn’t want that to become known, which is why he wanted all to accept the deal (to disguise the weak ones). I suspect that the same mindset infected the BofE, and since Barclays didn’t play along this is payback. But that’s just my guess.
My bank openly committed fraud yesterday, it was open and taking deposits. 🙂
Laird, it will be a jury trial. Some poor sods have just had 6 months of their lives assigned away.
It does sound a bit dodgy… But lots of things banks do that are apparently fine sound to me, a layman, a bit dodgy. I can only hope I don’t get selected for the jury.
If the authorities want a prosecution (sadly since the 1870s more and more prosecutions have been “public” with private prosecutions getting less and less common – basically everything in this country started to go wrong in the 1870s) how about the following case…..
A man uses taxpayer money and government borrowing to subsidise private companies via his “development agenda” of “infrastructure” spending and government backed but privately built housing estates. This man then goes to the companies he is subsidising with government funds and asks for (and receives) “contributions” for his political party.
The man who did this was George Osborne – why is he not in prison?
Also why was this man given various high paid positions in commercial companies even though he has never created a business or shown any talent in management? Why did these companies think they were buying by paying Mr Osborne lots of money?
Again this is modern Britain – the managers of many private companies are utterly useless (they destroy value) yet they are very paid and honoured (most ordinary people have experience of such managers). Perhaps this is why the socialists are so popular.
Socialism is NOT the answer – but something is wrong, very wrong. The corrupt and the just plain useless (the destroyers of value) prosper, seemingly the more harm they do the more pay and perks they get. When even the cleaners and security guards in a business enterprise (many business enterprises) can clearly see the irrational nature of the business decisions made by top managers (the vast waste of money and destruction of value) ordinary people are likely to become cynical about “capitalism”.
As I have been told so many times in my life (in relation to so many different business enterprises) “they [the top managers] are not as stupid as they seem Paul – once you understand that they do not care about the business, that they only care about themselves and their mates, everything they do makes sense”.
Most ordinary people have this experience of the top managers on their telephone number salaries and endless perks. And that is one reason why 40% of the voters supported the Marxists at the recent British election – even though Marxism is, to use technical language, bat-shit-crazy.
Somehow we have to get back to a position where the people who run a business actually own a large part of it (not necessary all of it – but a large part of it) and wish to hand it on to their children, i.e. wish to hand the business on in better shape than they found it. Not “loot-and-run” which seems to be the motto of modern Britain.
I remember listening to the owner of JCB (the big manufacturing firm).
He explained that he had many offers to “go public” – that he could be a very wealthy man and not have to work and that his children could be “trust fund kids” never having to work either (they could be like George Osborne – just spend their lives playing about and be given jobs, by their rich mates, such as Chancellor of the Exchequer and editor of the Evening Standard even if they are lazy and useless).
However……
The “City” would demand higher short term profits – and hired managers would be sent in to get them (and if he resisted he would have been pushed out – if he non longer OWNED the company).
For a few years there would indeed be higher profits – and the top managers would get telephone number salaries and bonus payments (and they would cash the shares they were given).
But then the business would go bankrupt – the factory would close and the men would be out of work. But the hired managers would be long gone – so they and their mates (the hired managers at the “institutional owners” – i.e. no real owners as most shares are NOT owned by individuals) would be fine, long gone.
The story of modern Britain.
Hired managers responsible to other hired managers (as most shares are not owned by actual people – due to Capital Gains Tax and Inheritance Tax). Not real owners who care about the long term fate of the business and desire to build up the business over generations.
The British are not a socialist people, not even now (although public opinion is changing – and not for the better), but many ordinary people (including some that still vote Conservative) have no respect, none, for the top hired managers of the business enterprises they work for – and still less respect for the “consultants”.
Within living memory even “The City” (financial services) was dominated by self employed people (whose word, for MOST of them, really was their bond) and partnerships. Now it is controlled by companies who see their role as squeezing as much money out of private investors as they can – and most shares have not been owned by private individuals since 1965 anyway (thanks to Capital Gains Tax and Inheritance Tax and so on). The City is now (since “Big Bang” – the “deregulation” of the imposing of thousands of pages of government regulations rather than the traditions and rules of private business enterprises and associations) dominated by business enterprises that do not seem to be owned by anyone and whose highly paid employees think only of their pay and perks. They do not care about investors – they rarely even meet these people face-to-face, and the idea of being invited to family weddings and to funerals and so on (as independent Stock Brokers used to be invited to the rites of passage of their long term clients) would raise laughter today.
I remember listening to various old hands back in the 1980s – they said that “for a generation” the new City would boom (it would be bigger than ever – vastly bigger, hugely bigger), but then it would collapse and collapse utterly. I think they were correct. The old “City” did not ban such things as trading “off exchange” or the setting up of other exchanges – it is actually the new “deregulated” city that has thousands of pages of detailed regulations designed to push everything into a handful of very large enterprises (which appear to have no owners – just hired managers responsible to other hired managers). The old private companies and associations (with their “stuffy” traditions) have been replaced by a massive government intervention (the so called “deregulation” of the “Big Bang” – pushed by the demented government courts, whose judges were more concerned with university theories of how a market “should” work, rather than what had actually worked for centuries).
The modern “Mega” City is indeed pushed by the endless Credit Bubble finance of the Bank of England (the vast bubble economy that will burst – seemingly “proving” that “capitalism” does not work) – but it is also the creature of thousands of pages of government regulations (presented as “deregulation” and the end of “restrictive practices”).
More and more the people see “capitalism” as the rule of a bunch of looters (who are really created by the tax structure – and the endless regulations and Credit Money expansion of government and its mates the big banks and so on) – of people who destroy the long term prospects of business enterprises, for the benefit of themselves and their mates.
That is incredibly dangerous – as it opens the door to support for the socialists.
Of course the creation of “money” by lending out “money” that does not really exist, is corrupt. And Barclays is as corrupt, in this respect, as all the other credit bubble banks (i.e. all the banks).
But if the government is going to punish Barclays for it – they should punish everyone else as well. And the government has been saying (for many decades) that such banking practices are legal – indeed the “basis of the modern economy” – so how can the government change the law, retrospectively, and without an Act of Parliament.
The real “crime” of Barclays is as Perry says – that they annoyed some people in government.
Real crooks (such as Sir Victor Blank – who deliberately destroyed so much share holder value at Lloyds, in order to please his mate Prime Minister Brown) never see the inside of a prison cell.
Unbelievable. After all that’s gone on, they’ve made no prosecutions against those who engineered the HBOS/Lloyds disgrace, which involved the creation of a false market, seemingly effected by Gordon Brown (or sources in the Cabinet Office at least) and Robert Peston (son of Lord Peston) using the good offices of the BBC. Frankly, they should have got the cuffs on quick for that, which was, let’s not forget, a deliberate and purposeful looting of Lloyds shareholders to bail out HBOS.
What do we learn? When the crisis arrives, the rule of law can go hang as far as the establishment is concerned.
Is there also an Un-Serious Fraud Office?
Paul:
As ever, you have summed it up.
Fred the Shred managed to crash the Royal Bank of Scotland and lost his knighthood, whereas John Varley saved Barclays and faces prison. The world really has gone mad.
One aspect of the Qatar deal the government apparently does not like is some £300 million in fees Barclays paid for “advice”. Anyone who has worked with Arabs knows that a little baksheesh is what makes deals happen. The British government can ban whatever it likes in Britain (and they do), but if a practice is legal (and expected) in Qatar, by what right does the British government seek to ban something happening in Qatar? As far as I remember, we stopped ruling Qatar in 1971 didn’t we? Why the imperialism HMG? From Barclays’ point of view, £300 million was a drop in the bucket compared to saving the bank.
It is very hard not to conclude that Barclays is being punished for defying the government and refusing to be nationalised. What a system we have.
@ Alisa June 21, 2017 at 9:56 am
The Frivolous Fraud Office.
DP
“refusing to be nationalized”
you mean: preferring to be nationalized by Qatar rather than by Britain?
I think this is indeed a large part of the reason why socialists are quite popular. Under socialist systems dim and destructive people seem to do quite well. I don’t know whether these two things are related.
I doubt there are a dozen people in the country who understand what this prosecution is about. The odds on them being the Jury are astronomical.
Jacob:
The Qatari government invested in Barclays in a commercial transaction, rather different from the situation RBS and Lloyds HBOS found themselves in.
Barclays played their hand cleverly, no-one suffered, the British government did not have to pump in any money, and now they are being prosecuted for it. Is Red Jeremy actually in Number Ten? He might as well be.
The gist of a commentary that I heard from an academic on Radio 4 today appeared to be that the bank had, by going to Qatar and by actions in the June before the October events, had got Qatar (their Investment Authority iirc) into a ‘preferential’ position over the bank’s shareholders, by easing Qatar into a situation where it got an opportunity to ‘buy-in’ on terms denied to the shareholders, thereby the shareholders might have not had an opportunity to protect or improve their own positions, and there were questions over various sums paid for ‘advice’. I have not heard any rebuttal to that as a factual narrative, but I understand that there is one.
Of course, one should presume innocence and the golden thread is what the prosecution has to follow, to prove every element of its case.
I’ve not looked at this closely (life being short, even with modern life expetancy) but one point I would make here – if there was something dodgy with Qatar going on, i.e. something that was not legal and above board in a British understanding, that does look like potential fraud against the shareholders. Clearly someone thinks there is a chance of a conviction under a law, and frankly I think that is the only judgement we want prosecutors to make (if they start to make political decisions, then the justice system is screwed).
John K – backhanders might be legal in Qatar, but Barclays is a British-registered company, so are covered by that minor jurisdictional thing that rules out corrupt practices to ensure a level playing field in the market. Not that that really exists in the banking sector, but it is pretty important that corruption does not exist, so this does not seem to be a silly policy.
Tim Worstall has the explanation.
If I understand him, the question is was the loan given to Qatar used to buy Barclays shares… in effect Barclays buying their own shares in a round about way?
Here’s Tim W… https://www.forbes.com/sites/timworstall/2017/06/20/sfo-charges-barclays-and-four-execs-over-qatar-bailout-during-the-crash/#1d4501ff728d
The events under question pre-dated the Bribery Act 2010, with its extension of jurisdiction to acts overseas, a nasty concept much liked over the Atlantic.
So at least the applicable law will be less repugnant than that which currently prevails.
“May you inherit a shipload of gold, and may it not be enough to pay your lawyers’ fees.”
There is a Yiddish saying that goes:
“May you need the money you got off me for paying your medical bills”.
We really can’t tolerate unauthorised private primary money creation.
Even if it’s macro-enonomically stabilising money creation?
Especially if it’s macro-economically stabilising money creation!
Jacob,
My phrase was a twist on what I had understood to be a Chinese curse, but replacing ‘doctors’ with ‘lawyers’, closer to the Zeitgeist.
My understanding has always been that, if someone can afford to pay all of your fees, you haven’t charged enough. 😆
Yes, Alisa, the Unserious Fraud Office is next to the complaints office in Monty-python sit-com land, but was closed down due to the arguments from the Argument officer, who has since moved into the Criminal Justice Department (non-criminals need not apply).
John B,
Thanks for the link – seems to have pretty much sealed the thread…
Rob: “I doubt there are a dozen people in the country who understand what this prosecution is about. The odds on them being the Jury are astronomical.”
“There are 10^11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.” – Richard Feynman