Three weeks ago, when banks were facing meltdown, the UK’s solution to the crisis (which other countries then followed) was to take them over, injecting capital in return for shares. But Barclays, one of the most famous of British banks, refused government aid. It needed about £3 billion and said that it would go to the market rather than accept a government bailout. It has now done that. In fact, it has managed to raise far more than what was needed — as much as £7.3 billion, not from British investors, but largely from Arab ones. Abu Dhabi and Qatar, via their sovereign funds, are injecting £5.8 billion into the bank. This is a turn up for the books. British banks — certainly Barclays — prefer Arab government money to money from their own government. But wait, the wiser observer will say, it is because the British bailout meant loss of independence and virtual nationalization through the back door. The shares which the UK government have taken in other banks are preference shares and they allow Prime Minister Gordon Brown to interfere when and where he wants — such as on what dividends should be or what bonuses are paid to executives. Barclays’ rescue by Abu Dhabi and Qatar does not involve nationalization.
That is the theory, but it is not quite true. In fact, the deal struck by Barclays and the Abu Dhabi Investment Authority and Qatar Holding, a subsidiary of the Qatar Investment Authority, could easily end up with the two sovereign funds controlling a third of the bank’s shares, which is an extremely powerful position. For the two funds, it is an incredibly good deal. Despite the global banking crisis, Barclays has done relatively well; profits in the first nine months of the year are up on last year. Moreover, it managed to pick up the best bits of Lehman Brothers in the fire sale following that bank’s collapse in September, and at a bargain price. But now the boot is on the other foot. With Barclay’s share price down — because all bank shares are down — it is cash-rich energy producers like Abu Dhabi and Qatar that can pick up the bargains.
But quite apart from the deal being the first in the predicted shopping bonanza in Europe and the US by cash-rich energy producers, the point is that a bank of the caliber of Barclays clearly trusts Arab money and trusts those who have it not to interfere in the running of the bank. It is so very different to the situation a couple of years ago when a public outcry in the US, largely whipped up by Congress, forced Dubai Port World to sell on the six American ports it had bought from British-based P&O because of supposed security concerns about Arab ownership of ports in the US. (The irony was that the ports were sold, to the satisfaction of Congress, to AIG — the US insurance giant that had to be rescued by the US government in September.) Before the financial crisis, a lot of hot air was generated in the US and Europe over the growing power and activity of sovereign wealth funds. The fear was that it was a door to foreign governments taking over domestic companies that had a strategic national interest. In Europe, the debate was largely focused on Russian and Chinese funds, the fear being that the former might use their investments for political purposes and the latter to steal intellectual property. The excitement seems to have died down. Certainly, the British certainly do not seem at all concerned about Arab money taking a large slice of one of their venerable banking institutions. If there is any worry it is that Barclays has given too good a deal to the Emiratis and the Qataris, but that is a financial consideration. Nonetheless, it has to be asked whether Americans would be so sanguine if Arabs were to take over a third of Bank of America or JPMorgan Chase? Perhaps after the roller-coaster turmoil of the past couple of months they would. But the malevolent and wholly unnecessary outcry over Dubai Port World leaves a worrying suspicion that it may not yet be a thing of the past.
