Salz Review - Wall Street Journal

47
Salz Review
An Independent Review of Barclays’ Business Practices
management. Interviewees from Barclays’ management and Board told us that the
FSA discussions had focused on the treatment of risk-weighted assets for capital
purposes and the accounting treatment and that the FSA indicated that it did not
object to the transaction. However, the FSA did reserve its position on how the
transaction would be treated for regulatory capital purposes. FSA executives told us
that there were conversations with Barclays conveying the FSA’s view that Protium
was a complex transaction with which they were very uncomfortable.
5.38 In a meeting on 14 September 2009, the Board Finance Committee 70 was informed
by the management that:
“The FSA had found it difficult to get comfortable with the proposal. They were
concerned that it would set a precedent and that the market would have difficulty in
understanding the transaction. They had now confirmed that they [the FSA] would
not object, subject to certain mitigants:
― That the assets would continue to be consolidated for Regulatory Capital
purposes;
― That the Loan to Protium would be rated;
― That Barclays will disclose in future financial statements the valuation of the
loan and the performance of the underlying cash flows;
― The FSA will suggest amendments to the RNS.” 71
5.39 On 16 September 2009, Barclays wrote to the FSA summarising its plans before the
transaction was announced later that day. We understand there was no written reply.
Barclays understood that while the FSA had reservations regarding the complexity of
the transaction, it reserved its position on its capital treatment but did not object to
the transaction. We think it is likely that the FSA took the view that it was not
appropriate for the FSA, in the circumstances, either to approve or to disapprove the
transaction. It nevertheless had the responsibility to decide how the transaction
would be treated for capital purposes.
5.40 In developing the Protium proposal, Barclays initially seemed to expect that the
regulatory capital treatment would be favourable. After further consideration, it
thought that it would be neutral – consistent with the previously followed riskweighted
assets treatment of those assets on the balance sheet. However, the
regulatory capital conditions subsequently imposed by the FSA were more onerous
and confirmed to Barclays by the FSA in June 2010. This may have been in part
because the FSA took a more conservative view of the size of the risk.
5.41 We reviewed the extensive disclosures made by Barclays about Protium, noting that
these provided considerable detail, but did not include quantification of the residual
value which would go to investors following any repayment of the loan to Barclays.
5.42 After the announcement of the Protium transaction, some commentators expressed
concerns regarding its underlying purpose. For example, Credit Suisse analysts
70 Barclays company secretariat, Minutes of the Board Finance Committee meeting, 14 September 2009.
71 RNS is the regulatory news service used for stock exchange announcements.