Barclays' Qatari baggage is getting heavier. A costly capital injection by Gulf funds spared the UK bank from a state bailout in 2008, but it is now at the centre of a probe over its capital raisings.

 

If the probe by the UK's Financial Services Authority into the disclosure of fees discredits one of the few remaining members of Barclays' top executive team, the bank's decision to seek salvation in the Middle East will look even more like a Faustian pact, say Reuters Breakingviews columnists Una Galani and George Hay.

 

The fallout from the interest rate-rigging scandal has already cost Barclays its chairman, chief executive, and chief operating officer. Now finance director Chris Lucas, along with former executive Roger Jenkins, are at the centre of the probe, which relates to the bank's capital raisings in June and October 2008.

 

The central question surrounds fees that Barclays may have paid Qatar's sovereign fund in return for advising the bank's Middle East business. The mandate was first disclosed when Barclays raised 4.5 billion pounds from investors including Qatar in June 2008. At the time, however, there was no suggestion that Barclays was paying for these services.

 

Compare that with October 2008, when Barclays announced plans to raise a further 7.3 billion pounds, mostly from Gulf investors - an exercise that cost it a chunky 300 million pounds in fees. On that occasion, Barclays said it had paid Qatar Holding 66 million pounds for "having arranged certain of the subscriptions" in the fundraising. Barclays says it believes it met its disclosure obligations. But if the FSA disagrees, Lucas will be in a difficult position.

 

Barclays shareholders never liked the Gulf deal, which they saw as expensive and riding roughshod over their pre-emption rights. The advisory tie up with Qatar also doesn't appear to have given the bank's Middle East business much of a boost.

 

Barclays has consistently argued that it had few alternative sources of capital at the height of the crisis, and that Gulf funds were preferable to the UK state capital that was forced on both Royal Bank of Scotland and Lloyds Banking Group.

 

Constant government meddling suggested that Barclays had made the right choice. But following the latest scandal, some investors may be wondering if the bank would have been better off accepting a bailout.

 

Barclays said on July 27 that it is at the centre of a probe by the UK Financial Services Authority over its disclosure in relation to "fees payable under certain commercial agreements and whether these may have related to the bank's capital raisings in June and November 2008". -, Reuters Breakingviews columnists. (The opinions expressed are their own)