Today, I continue my yearlong tribute to what I believe to be the greatest album in the history of Rock & Roll, Sgt. Pepper’s Lonely Hearts Club Band, by considering what I always thought of as most poignant track of album, She’s Leaving Home. The song was inspired by an actual runaway tale. In the Rolling Stone series ‘Beatles’ ‘Sgt. Pepper’ at 50’ article entitled Meet the Runaway Who Inspired ‘She’s Leaving Home’, the song was based on a story about Melanie Coe who ran away from home at the age of 17 in 1967. She was a girl with “everything,” including her own Austin 1100 car and a “wardrobe full of clothes,” both of which were left behind.” Her father was quoted in a Daily Mail piece at the time “I cannot imagine why she should run away”; “She has everything here … even her fur coat.”
Paul McCartney said in his 1997 biography, Many Years From Now, “We’d seen a story in the newspaper about a young girl who’d left home and not been found. “There were a lot of those at the time, and that was enough to give us a story line. So I started to get the lyrics – she slips out and leaves a note and then the parents wake up – It was rather poignant.” John Lennon added some of the most poignant lines of the song based upon “scornful lines from his stern Aunt Mimi, who had raised him as a child. “Paul had the basic theme, but all those lines like, ‘We sacrificed most of our lives, we gave her everything money could buy, never a thought for ourselves …’ those were the things Mimi used to say””.
I thought about the poignancy of the song when I read about the latest scandal to rock the UK banking institution Barclays. BBC online reported that Barclays and four former executives have been charged with fraud over their actions in the 2008 financial crisis. The four individuals include former chief executive John Varley, “former senior investment banker Roger Jenkins, Thomas Kalaris, a former chief executive of Barclays’ wealth division, and Richard Boath, the ex-European head of financial institutions, have all been charged with conspiracy to commit fraud in the June 2008 capital raising.” They are scheduled to appear at Westminster Magistrates’ Court on 3 July.
Caroline Binham, writing in the Financial Times (FT) in a piece entitled “What is the Barclays fraud case about?”, said the “Serious Fraud Office is accusing the bank and four of its former senior staff of lying, or not fully disclosing to the market what it was paying Qatari investors as they were ploughing billions of pounds into Barclays to stave off a UK taxpayer bailout.” It focuses on an “advisory service agreement, or ASA, struck with Qatar at the time of the fundraisings in 2008. The first cash call and original ASA was in June of that year; the second deal in October then extended the agreement. The ASA in total pledged £322m ($406MM) to Qatar in exchange for helping to develop Barclays’ services in the region. This led to Qatar investing £4.1bn ($5.1bn) into Barclays, mainly through subscribing for ordinary shares. In October, Qatar invested another £7.3bn ($9.21bn) in the bank. In October and in addition to the money pledged by Barclays to Qatar in the ASA, the bank loaned Qatar’s ministry of finance $2.3bn ($2.90bn) just as the October deal was closing.”
To say this entire arrangement smells funny would be putting it mildly as “The total that was pledged to Qatar matched what the tiny Gulf State initially invested in Barclays, leading to questions over whether what was going on was inducement, or lending to reinvest back in the bank. The bank has previously said that the ASA’s fees were for legitimate services, and that the loan had a specific clause outlawing any such reinvestment.” All of this legally matters around the bank’s duty to disclose financings under UK law. While the existence of the original ASA was disclosed to the market as part of the UK regulator approved June prospectus, the amount was not. More importantly, “neither the extension of the ASA that accompanied the fundraising in October” nor the “$3bn loan to Qatar’s ministry of economy and finance just as the second fundraising was closing” were disclosed to regulators or the public.
In the anti-corruption world, consulting contracts can raise red flags, particularly when there are no appreciable services delivered under said contract. The article did not report if there were indicia of an actual arms-length agreement, with invoices describing the services and regular payments, all based upon the bank’s then standard contracting practice. Further, the ‘loan’ made at or near the time of the investment appears equally problematic and if the timing is no coincidence, if could be, at the very least, inconvenient.
While this Serious Fraud Office (SFO) action does not involve the current Barclay’s chief Jes Staley, who has his own series of problems, it comes at a very poor time for the bank’s reputation and other legal issues. In another FT piece by Binham and Martin Arnold, entitled “Barclays hirings under US scrutiny”, they noted, “Questions about Mr Staley’s judgment have also been raised after it emerged that KKR had blocked Barclays from winning new mandates at the powerful US private equity group in protest at how Mr Staley had taken the side of his brother-in-law in a dispute over a failed Brazilian deal.” Staley also attempted to enlist corporate security and US national law enforcement officials to determine the identity of an internal, anonymous whistleblower, in contravention of company policy and US law. Staley “then fell for a spoof email purporting to come from Mr McFarlane following a bruising annual meeting during which Mr Staley apologised for the whistleblower incident.”
Finally, Barclays is in hot water for potentially violating US anti-trust laws. Binham and Arnold reported that the head of JPMorgan Chase, Jamie Dimon, grew irritated with Barclays’ chief Staley for poaching his executives (Staley is a former JPMorgan Chase exec). They reported, Dimon “called John McFarlane, Barclays’ chairman, to complain about the defections.” The FT also noted, “Mr Staley then spoke to Daniel Pinto, the head of JPMorgan’s investment bank.” Based on this the “DoJ is examining whether Barclays entered into a so-called “no poach” agreement by promising not to hire more JPMorgan bankers, people familiar with the situation told the FT. Such agreements are illegal under US antitrust laws.”
It has unquestionably been a difficult year for Barclays. Whether any of its former executives will face any jail time for their actions back in the 2008 financial crisis is an open question. As for current bank chief Staley, the news has certainly not gotten any better this year. He may be leaving home.
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© Thomas R. Fox, 2017