Fear of Barclays executive pay cuts prompted Qatari deal, court hears

Barclays’ board worried that executive pay would be cut if the lender failed to raise private funds and succumbed to a government bailout at the height of the 2008 crash, the lender’s former chairman told a court on Tuesday.

Marcus Agius is the first senior Barclays board member to be questioned during the trial at Southwark crown court in central London.

Agius, wearing a dark grey suit and blue tie, was questioned by the Serious Fraud Office’s lead prosecutors for nearly five hours over the bank’s £11bn emergency fundraising in 2008.

Lead prosecutor Edward Brown QC asked the former chairman to provide details about a board meeting held in early October that year, just as the UK government was preparing to bail out Barclays’ high street peers Royal Bank of Scotland and Lloyds TSB.

According to meeting minutes read to the jury, the board discussed whether Barclays should take the government up on an offer of a fresh capital injection, but was worried about “constraints placed on the bank”, particularly around its operations, ability to issue dividends and the level of “executive compensation”.

Agius said at the time, there was a “fantastic level of competition” for bankers, whose pay had crept higher over a 10-15 year period. The prospect of pay cuts meant risking the bank’s top-level talent, he explained. The board was “facing a problem, that if we didn’t pay people the going market rate … very highly paid, highly talented people walked out”.

“We concluded that if our major shareholder was the government, our ability to pay our people competitive rates in order to obtain their services would be compromised,” Agius said.

The SFO alleges that four former Barclays executives – Richard Boath, Roger Jenkins, Tom Kalaris and former CEO John Varley – lied to the stock market and other investors about how £322m in fees were paid to Qatar in relation to emergency fundraising of more than £11bn in 2008.

Prosecutors say the executives put together two advisory services agreements in order to disguise Qatar’s demand for larger commission payments.

All four men have denied the charges. Prosecutors have not accused Agius of wrongdoing.

Agius told the court that initial fundraising plans started earlier in 2008 when markets were relatively calm. It meant Qatar “weren’t essential at that point – they were desirable”, as investors. But by summer 2008 “things started to turn”, UK authorities became increasingly nervous and the City regulator soon required banks to raise their capital levels, Agius said.

It culminated in a “frenetic weekend” in early October. “Insofar as we were concerned, we had to decide whether we would be able to meet those requirements,” Agius said.

Agius was asked by prosecutors what the implications would be if the second fundraising in October 2008 – dubbed Project Canterbury – failed. The former chairman said the bank would have been forced to “go to the government, cap in hand” and that it would have “damaged the credibility of Barclays and the board”.

The trial, which is expected to last up to six months, continues.