Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
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6.52 The lawsuit alleged that Barclays Capital had a conflict of interest while advising
Del Monte on the sale that may have resulted in Del Monte receiving a lower sale
price. Investors claimed that Barclays Capital intentionally limited the number of
potential Del Monte buyers and, despite confidentiality agreements, steered the
group together to increase chances that Barclays would provide the financing.
The practice of a bank advising on a deal also providing the financing, called staple
financing, was reasonably common at that time. A prearranged financing package
could help the seller complete a sale quickly and the buyer to know that financing is
available. Banks would earn fees from both sides of a potential merger by advising
the seller and financing the buyer.
6.53 Barclays told us that it has since stopped the practice of providing staple financing.
The settlement and associated publicity also led at least eight other banks to review
their own policies on financing buy-outs when they also have a role advising
sellers. 108
6.54 We accept that investment banks have historically had to navigate a number of
inherent conflicts of interest, given that they will often have present or historical
connections on both the sell and buy sides of deals. How conflicts of interest are
best managed in particular circumstances depends on the precise circumstances.
We consider, however, that the practice of staple financing did carry a risk of a
perception that the interests of Barclays Capital’s clients could have been affected
by the bank’s involvement in financing the deal. This provides another example of
where reliance on apparent industry practice is not necessarily a satisfactory answer
to a particular ethical issue. It may well be that what is said to be a standard practice
is only appropriate in specific circumstances, or subject to specific conditions, and
that there is a danger that these limitations are not fully understood as the practice
develops. An ideal culture would value curiosity and enquiry in circumstances where
on the face of it there is an ethical issue.
Inappropriate Behaviour – LIBOR and EURIBOR
6.55 The LIBOR and EURIBOR index rate-setting issues that emerged publicly in June
2012 led to fines for Barclays, which was the first bank publicly to settle the
regulatory complaints. Due to continuing investigations into potential criminal
actions, the scope of our review of these events excluded all matters subject to legal
privilege.
6.56 At the heart of the matter were submissions of figures for the rates paid on interbank
transactions used in the calculation of the LIBOR and EURIBOR rates widely
used in financial transactions. These submissions took place at least as far back as
January 2005 and continued until July 2008. Barclays’ employees and employees at
certain other banks were involved.
6.57 On 27 June 2012, the FSA said that “Barclays’ misconduct was serious, widespread,
and extended over a number of years” and that the bank’s breaches included:
108 Bloomberg, “Barclays Leads LBO Financing Retreat After Del Monte Slap”, 14 September 2011.