Ex-Barclay CEO Varley Decided to Split Qatari Fees, Kalaris Says

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(Bloomberg) -- Former Barclays Plc Chief Executive Officer John Varley decided to split payments to Qatar into two portions during a fundraising amid the 2008 market meltdown, a former colleague told a jury in London, for the first time identifying the CEO as the person behind the decision.

On Tuesday, former wealth management boss Tom Kalaris opened his testimony by describing his role in helping to save the bank from a U.K. taxpayer bailout. At the time, Kalaris was coordinating a team negotiating with institutional investors, leading to more than 11 billion pounds ($14 billion) raised in capital raisings in June and October 2008.

Qatar became the largest single investor and demanded more than the usual 1.5% in investment commissions, the evidence presented in the case shows. In early June 2008, Kalaris attended a meeting with a senior Qatari official, who said Barclays would have to pay a 3.75% commission in order to secure the Gulf nation’s funds, the banker said in court.

The same afternoon, Kalaris, now 64, took the service elevator to the 31st floor at Barclays’s London headquarters to inform Varley of the demand, he said.

Varley’s “immediate reaction was that he would be prepared to offer value of 3.5%,” Kalaris said. “He required that the underwriting be 1.5% and we would need to get the additional value to the Qataris in a different way.”

The bank used two so-called Advisory Service Agreements to channel another 322 million pounds to the Qataris, and the Serious Fraud Office alleges the ASAs were just a smokescreen. The SFO argue that Kalaris, and fellow defendants Roger Jenkins and Richard Boath illegally hid the fees from investors. The three men deny the accusation. Kalaris said side agreements such as the ASAs “are quite common” in banking and there is nothing wrong with them.

Varley was acquitted of similar charges last year and is not accused of any wrong-doing by prosecutors.

Before Kalaris took to the stand, Jenkins, Barclays’s former Middle East investment banking head, also emphasized Varley’s role during his cross-examination by an SFO attorney. While Jenkins negotiated the investments and ASAs with Qatar, he said Varley was the main person responsible for approving them and was fully aware of all the details and struck relevant parts of the agreements himself.

“In October, Mr. Varley was my director,” Jenkins said, referring to the period when the second ASA agreement was struck. “I was living in his office, I was living in his ante-room. I’m not sure who Mr. Varley is misleading on the deal on the night of the 24th. I was on my way to Los Angeles when he did the deal.” When the Qataris asked for more money days later, the bank agreed and “it was a Mr. Varley decision,” Jenkins said. “I don’t have that authority. He has the authority, not I.”

SFO attorney Ed Brown said the Barclays board didn’t disclose the fees in capital raising prospectuses, because Jenkins misled it. Contrary to Jenkins’s assertions, there was no plan for Qatar to deliver actual services to the bank under the ASAs, Brown said.

“You, together with others, intentionally used the board without their knowledge to make the false representations,” Brown said to Jenkins. “I suggest that if you hadn’t delivered that disguise, the mechanism, the board would never have put out false representations.”

Jenkins said external and internal lawyers, former investment banking head Bob Diamond and board members had a complete picture of the arrangements and approved them. None of them have been accused of any wrongdoing.

“These agreements had tremendous upside and they are genuine,” Jenkins said. “And if they were genuine, I was telling the truth and I am telling the truth.”

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