Via The Guardian:
Barclays is raising up to £7.3bn, mainly from Middle East investors, who could end up owning nearly a third of the UK’s second largest bank.
The deal allows Barclays to strengthen its balance sheet without getting help from the taxpayer, but its terms, which are seen as generous to its new investors, drew fierce criticism today from Liberal Democrat deputy leader and Treasury spokesman Vince Cable.
“This is a scandal of mammoth proportions,” he said. “Here is a bank which relies on the taxpayer to bail it out if the going gets rough but which has offered Middle Eastern investors a much better deal than the banks are offering to the British taxpayer.”…
This [deal] means it will avoid restrictions on executive pay, bonuses and shareholder dividends.
“We have to ask why Barclays is willing to offer a better deal to foreign investors than the British taxpayer,” Cable said. “The answer is simple: they don’t want the British Government stopping them from paying massive bonuses to their executives.
“More than the other banks, Barclays operate a high-risk casino operation which makes the bank particularly unstable but which gives very rich pickings to the top executives. The British Government must not simply let this pass,” he added.
The BBC’s Robert Peston adds:
For the avoidance of doubt, Qatar and Abu Dhabi are paying much less than what was on offer to Barclays from the Treasury, from taxpayers, just over a fortnight ago.
So the wealth of Barclays’ existing shareholders has been eroded by the refusal of Barclays to take the money on offer from taxpayers…
The 14% coupon [paid to Qatar and Abu Dhabi by Barclays as part of this deal] is tax deductible (and, before you ask, the coupon on the prefs being sold by HBOS, Lloyds TSB and RBS to the Treasury is not tax deductible).
That means we as British taxpayers are subsidising the payment to these oil-rich states to the tune of £120m per annum – which presumably won’t please Alistair Darling at a time when tax revenues are too tight to mention.
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12 Comments
I thought Barclay’s hadn’t taken any taxpayer’s money?
Scandalous. To think that a bank might find itself able to raise capital & continue to do business without getting it from the government. What times we live in when government doesn’t control the entire economy.
And what times we live in when politicians miscalling themselves liberals are so afronted at the state not running everything.
In fact this is very good news since it confirms that it is likely that the investments made in other banks will be repaid.
Vince has called this one wrong – why in the world would it be preferable that the taxpayer fund Barclays rather than private investors? In this case the answer seems to be that the latter option wouldn’t allow the government to intervene and control what Barclays does, which is a worryingly left-wing and interventionist idea. I was always under the impression that Vince was one of the more economically liberal members of the parliamentary party but now I’m not so sure…
To be fair, I think Vince is offended by the fact that Barclays were willing to accept a loan as a stand-by credit to prevent them from collapsing, but then welched on the deal.
That said, is that such a bad thing?
Read what Peston says, he is an objective reporter. Barclays are doing down their own shareholders, and favouring instead the payment of bonuses to their executives. Barclays are also getting a tax break out of it, i.e. you and I are subsidising what they have chosen to do.
I don’t hear the Tories racing to condemn Vince as a left-wing ideologue for his response to this. It seems that only Lib Dem commentators, these days, take such an extreme view!
A scandal, yes; but where is the mammoth?
If I was a Barclay’s shareholder, I would be pretty cross about the deal. As a simple British taxpayer, I am happy that we have not acquired shares in a bank whose Board behaves like that. As a citzen watching the craziness of a financial crisis, it is nice to see that there is a price – however low – at which those who have the money will buy into a bank like Barclays.
Wake up, people! Vince is NEVER wrong. What he is pointing out is that Barclays have done this deal – hugely over-generous to the Arab investors – wo that they can go on paying themselves lubbly-jubbly bonuses while continuing to pursue their chosen high risk strategies in the investment banking market (where there star man, appropriately named Diamond, manages to trouser more than £20 million a year!) If it works, the Arabs and co profit hugely. If it doesn’t, guess who still picks up the bill (because Barclays is too big to be allowed to fail). A Barclays customer for more than fifty years, I am now moving my account to HSBC (the one bank still strong enough to tread its own path without proffering the begging bowl to anyone).
Vince has pointed out that Barclays management have chosen one deal over another. Vince thinks that they have done this because it allows them to pay themselves more, and that the deal is worse for shareholders. Supporters will argue that management does not want Alastair D micromanaging the bank for the next 5 years.
Part of the answer will be in the share price. If B’s shareholders are being treated badly, then we would expect the share price to fall. If they are satisfied, it would not.
But Darling should ask how he came to structure the deal he offered so that the payments were not tax deductible, if the usual thing is that they would be tax deductible.
My own take is that if 14% tax deductible is less costly to shareholders than 12% non-tax deductible then Barclays have struck a deal that is good for their shareholders. That is what management is supposed to do: find the best deal for shareholders.
Robin Young – a plague on all their houses. Move to a mutual, the coop bank or a building society offering retail banking.
If the shareholders don’t like it then will not vote for it. The implication is that they will decide that the freedom they would lose in being government controlled will be more damaging than any financial disparity between the deals.
Either way for Vince to say that banks are wrong to seek any future that does not involve them being state controlled is clearly incompatible with any claim to being a liberal.
So is the inability to see any difference between not paying extra tax & getting a state subsidy.
Clearly not having the govt as a major shareholder is worth a decent amount to a bank. It allows them to pay what the Board feels is fair value and ensures that dividends won’t be capped.
Objectively, an assessment of what a deal is “worth” to a publicly listed company needs to take total shareholder returns into account, not just % ownership.
I think Vince got this wrong. The less banks that absolutely have to take advantage of the public purse the better.
Those of you who think Vince is wrong are viewing this debate from a flawed perspective. Barclays didn’t ask for government funding but was offered it because the government can’t allow it to fail for to do so would be more expensive to the tax payer. Barclays has stated it will go it alone so that it may continue to pursue high risk banking with any adverse effects being placed upon the taxpayer and it will obtain third party funding with assistance from the taxpayer to do this. If the UK government have a problem with Barclays-OPEC then simply stop the loan subsidy and encourage UK bankers to move to one of its own government controlled banks.