Fraud probe could turn Qatar cold on Barclays

Fraud probe could turn Qatar cold on Barclays

Barclays announced plans to raise a further 7.3 billion pounds from investors led by Qatar Holding, Challenger, and Abu Dhabi's Sheikh Mansour.

August 30, 2012 7:00 by Reuters

(Una Galani is a Reuters Breakingviews columnist. The opinions expressed are her own)

Qatar could turn cold on Barclays. The sovereign fund isn’t publicity shy, but a probe by the UK’s Serious Fraud Office into its financial links with the British bank has forced it into an unwelcome spotlight. Whatever the outcome of the investigation, in a region where rich rulers are fiercely protective of their reputations, there is a chance that Qatar might seek to distance itself from the bank.

The probe is a threat to what has been so far a four-year win-win, relationship. A costly capital injection led byQatar spared the UK bank from a state bailout in 2008. Yet the Libor rate-rigging scandal and the latest probe have been a dampener. The SFO picks up from an investigation by the UK Financial Services Authority into disclosure of fees paid to Qatar in return for advising the bank’s Middle East business.

The stakes are high. Qatar has invested over 5 billion pounds and owns almost 7 percent of Barclays after partly reducing its ownership in 2009. The bank’s shares have since slumped, but the fund is making double digit returns on Barclays’ reserve capital instruments that redeem in 2019 at the earliest. The relationship has blossomed further this year. Qatar agreed to co-invest $250 million with Barclays’ natural resources private equity investment unit in April. Barclays is also top of Middle East M&A tables for the year to date, thanks to two big advisory tickets from the Qataris.

Qatar won’t appreciate the attention, even though there’s no suggestion that its fund has done anything wrong. The Gulf state is still reeling from allegations, which it denies, that it paid millions in bribes to win football’s 2022 World Cup. Citigroup’s struggle to win business in Abu Dhabi after the sovereign fund’s 2007 investment into the U.S. bank soured is a reminder of the dangers of getting on the wrong side of a rich Gulf state.

Qatar won’t walk away easily from its juicy returns. And raft of new faces at the bank could also make it easier to hang on. Moreover, the damage will be limited if it turns out that the British lender simply failed to make proper disclosures back in 2008. But in the meantime, Barclays must hope that Qatar doesn’t act preemptively.