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The back story to the Barclays’ buying their own debt, is their strategy for borrowing the money in the first place. This was fraught with baffling lapses of judgment on the part of the Crown Agents, which supplied the money, and rampant conflicts of interest among the Crown Agents’ advisers. The first of two official inquiries, set up after the bail-out of Barclays’ main creditor in 1976, called these associations “haphazard”. To the modern eye, they look scandalous.
Sir Frederick Barclay and his twin brother, Sir David Barclay, outside Buckingham Palace after receiving their Knighthoods for their support of medical research in October 2000.(AP) The original remit of the Crown Agents for the Colonies was to arrange loans for colonial governments and invest their money. After the collapse of the British empire, the agency needed a new mission. Rebranded as the Crown Agents for Overseas Governments, it started to borrow in the money markets for its own account, speculating in gilts, commodities and equities. It also found new borrowers who had nothing to do with former colonies, including the Barclays Hotel Group.
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When a property and banking crisis hit in 1973-74, the Crown Agents’ balance sheet imploded. The government pumped in £1.1bn of cash in today’s money and set up a £640m line of credit* with the Bank of England. Just under half of its total losses were on the Crown Agents’ own activities. The Economist has been through hundreds of documents at Britain’s National Archives that were made available to the two inquiries into this disaster. These provide more questions than answers—including over the deals involving Barclays and their hotels.
The two official inquiries found no evidence of corruption in the Crown Agents, despite the rumours swirling around the City of London. The exception was a junior official, called Bernard Wheatley, who had the power to grant secured and unsecured loans running to millions of pounds. Wheatley did not give evidence to the first inquiry, but was charged with corruption and died in 1977 before standing trial. Astonishingly, he was known by his bosses to be “a frequent and habitual gambler”—and, it turned out, “on a prodigious scale”. By 1973, a member of two casinos, he would wager £7,500-15,000 an evening. By 1974, when his annual salary was around £77,000, his daily spending reached as much as £25,000-40,000.
Going by the official record, this scandal has very little bearing on Barclays. Their name does not appear in the second inquiry’s 28-page index. “Barclays Hotel Group” featured on just four of the 260 days of public evidence, and then for only a small part of them.
However, a closer look raises some troubling questions. For a start, the agency’s official loss of £59.4m on loans to the Barclays Hotel Group was the fourth-largest to an external borrower—and incurred a further £18.3m in unpaid interest. What’s more, the man inside the Crown Agents who financed the Barclays’ hotel-buying was none other than Bernard Wheatley. In one transaction as the property crisis was biting, in late 1973, Wheatley approved a £64.8m loan for them to buy a hotel. At the time, he obtained no security on the Crown Agents’ loan.
Wheatley worked with a group of advisers—those “haphazard associates”. One was a legal firm called Davies Arnold Cooper, which had introduced him to the Barclays in 1968. Davies Arnold Cooper was also the firm that advised Wheatley on what securities the Crown Agents needed for its loans. It introduced Wheatley to a firm that became the valuers for the Crown Agents and, as such, valued the property behind the largest loan it made to the Barclays Hotel Group.
The first inquiry condemned these arrangements, concluding that: “It is a strange organisation which allows a junior official, as Mr Wheatley was at the time, to recruit its professional advisers and to recruit them not from nationally known firms but from young men making their careers.”
As the inquiries noted, these associations were riven by conflicts of interest. Davies Arnold Cooper also acted for the Barclays and enthusiastically promoted deals to Wheatley on the Barclays’ behalf. In the mid 1960s to the mid 1970s, the senior partner there, Henry Kaye, had been a director of or shareholder in four Barclays companies—and sometimes both.
A filing at Companies House reveals that in 1970 Kaye controlled 42.5% of Barclays Hotels, and he held nearly half of that offshore. A letter from David Barclay to the Crown Agents, dated February 17th 1972, stated that the family had increased its stake in Barclays Hotels, paying £14.36 a share. These shares had originally belonged to a company in Jersey with a name that was similar to another company registered in Britain connected to Kaye. It made a profit of £11.6m in 18 months.
Had Kaye been working to get the best possible deal for the Crown Agents? Or had he been working for the Barclays—and himself—by, say, talking them up to Wheatley and advising the Crown Agents not to ask for much security on the loan? It cannot have been both.
When Parliament heard back from the inquiry into the Crown Agents, late in 1977, the government praised its “thorough and exhaustive work”. The fault, they concluded, lay not with any criminal conspiracy, but good, old-fashioned incompetence. Looking back across the decades, that conclusion seems unforgivably complacent.
*The figures in this article have been converted to December 2023 prices, using a retail-price index.
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Correction (March 22nd 2024): An earlier version of this article mistakenly mentioned the Crown Estate in two places where we meant to refer to the Crown Agents.
© 2023, The Economist Newspaper Limited. All rights reserved. From The Economist, published under licence. The original content can be found on www.economist.com
