Salz Review - Wall Street Journal

More documents

Recommendations

Info

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.
Salz Review An Independent Review of Barclays’ Business Practices 48 described it as “a little strange”, noting that the Bank appeared to be giving up the prospective benefit from a subsequent rise in the asset values from the carrying values ascribed at transaction date. 72 The analyst Ian Gordon said: “It's being presented as providing a more stable, certain outturn, but you could argue they are giving away the upside but not really being sheltered from much of the downside.” 73 5.43 After internal reviews, including by the Board Finance Committee, Barclays made in its 2010 results a £532 million impairment provision against the Protium loan and it announced this on 15 February 2011. 74 Barclays’ 2010 accounts stated that regulators were continuing to review the transaction, and that the “on-going review … includes consideration of the non-consolidation of Protium”. 75 We understand that during the course of 2010 and into 2011, Barclays had been questioned about the Protium structure accounting by the Financial Reporting Review Panel (FRRP; part of the Financial Reporting Council) in the UK and the Securities and Exchange Commission in the US as financial reporting regulators. The FRRP took the view that Barclays’ accounting treatment was not appropriate and that the bank should have continued to consolidate the assets relating to Protium in the 2009 and 2010 accounts. Following the impairment charge, the effect of non-consolidation ceased to be material and the FRRP closed their enquiry. 5.44 The Securities and Exchange Commission (SEC) concluded in March 2011 that they “were unable to concur with [Barclays’] conclusion that the non-consolidation of Protium is appropriate”. However, given that the effects of not consolidating Protium were not material, the SEC had “no additional comments at the present time.” 76 Accordingly, Barclays was not required to restate its accounts. 5.45 Barclays reconsidered the economics of the loan based on the FSA capital treatment. After various discussions during the first quarter, in April 2011 Barclays negotiated a restructuring of the transaction with the other parties and took back £6 billion in Protium assets on to the Barclays balance sheet. 5.46 The restructuring involved Barclays paying an $83 million break fee based on accrued performance management fees to C12, the Protium management company. It also agreed to buy out unidentified third-party investors for $270 million and to invest $750m into another C12 credit fund called Helix. The Financial Times reported that: “Analysts said the Protium affair had damaged Barclays’ reputation.” 77 5.47 It should also be noted that in the same financial year as the Protium transaction Barclays was working on a second similar but less complex transaction. We understand that when the FSA was approached regarding this proposed transaction, a number of concerns were raised and Barclays did not pursue it. 72 Guardian, “Barclays sells $12 billion of risky assets”, 16 September 2009. 73 Analyst at Exane BNP Paribas. 74 Barclays’ 2010 Annual Report states that “following a reassessment of the expected realisation period, the loan is carried at an amount equivalent to the fair value of the underlying collateral, resulting in an impairment of £532m”. 75 Barclays, 2010 Annual Report, March 2011, p. 115. 76 SEC, 22 March 2011 Letter to Barclays; http://www.sec.gov/Archives/edgar/data/ 312069/000000000011017550/filename1.pdf. 77 Financial Times, “Barclays buys back £6bn Protium assets”, 27 April 2011.
Page 1: 0 Salz Review An Independent Review
Page 4 and 5: Salz Review An Independent Review o
Page 6 and 7: 1 Salz Review An Independent Review
Page 16 and 17: 11 Salz Review An Independent Revie
Page 40 and 41: 2012 167 1993 1994 1995 1996 1997 1
Page 58 and 59: 2002 2003 2004 2005 2006 2007 2008
Page 102 and 103:
97 Salz Review An Independent Revie
Page 104 and 105:
99 Salz Review An Independent Revie
Page 106 and 107:
101 Salz Review An Independent Revi
Page 108 and 109:
Page 110 and 111:
Page 112 and 113:
Page 114 and 115:
Page 116 and 117:
Page 118 and 119:
Page 120 and 121:
Page 122 and 123:
Page 124 and 125:
Page 126 and 127:
Page 128 and 129:
Page 130 and 131:
Page 132 and 133:
Page 134 and 135:
Page 136 and 137:
Page 138 and 139:
Page 140 and 141:
Page 142 and 143:
Page 144 and 145:
Page 146 and 147:
Page 148 and 149:
Page 150 and 151:
Page 152 and 153:
Page 154 and 155:
Page 156 and 157:
Page 158 and 159:
Page 160 and 161:
Page 162 and 163:
Page 164 and 165:
Page 166 and 167:
Page 168 and 169:
Page 170 and 171:
Page 172 and 173:
Page 174 and 175:
Page 176 and 177:
Page 178 and 179:
Page 180 and 181:
Page 182 and 183:
Page 184 and 185:
Page 186 and 187:
Page 188 and 189:
Page 190 and 191:
Page 192 and 193:
Page 194 and 195:
Page 196 and 197:
Page 198 and 199:
Page 200 and 201:
Page 202 and 203:
Page 204 and 205:
Page 206 and 207:
Page 208 and 209:
Page 210 and 211:
Page 212 and 213:
Page 214 and 215:
Page 216 and 217:
1993 1994 1995 1996 1997 1998 1999
Page 218 and 219:
1993 1994 1995 1996 1997 1998 1999
Page 220 and 221:
1993 1994 1995 1996 1997 1998 1999
Page 222 and 223:
Page 224 and 225:
Page 226 and 227:
Page 228 and 229:
Page 230 and 231:
Page 232 and 233:
Page 234 and 235:
Page 236 and 237:
Page 238 and 239:
Page 240 and 241:
Page 244:
Salz Review - April 2013
show all

Salz Review - Wall Street Journal

Create successful ePaper yourself

Delete template?

Save as template?