SCANDAL AT BARCLAYS: WHY AVENDIS LOSERS WILL SUE THE BANK

It has been disclosed this week by Teri Buhl, contributing editor for DealFlow Media, that at least one wealthy investor intends to sue Barclays, alleging that the bank used a less-than-straight Geneva company to sell products it knew to be toxic, in an effort to get the liabilities off its balance sheet. Current CEO Bob Diamond was in charge of the investent division, Barcap, at the time. New internal email evidence has emerged since the last suit was thrown out on a technicality….and the Swiss authorities are keen to prosecute.

Just how good (and honest) a corporate manager is Bob Diamond? This seems to me a reasonable question to ask, given that he’s given evidence to Parliamentary committees, and in quite a few courtrooms, since 2008. And of course, having been for some time the CEO of Barcap, Bob’s ‘success’ catapulted him into the same role in charge of the entire Barclays Group that he holds today.

Following the Barcap takeover of Lehman in 2008, Diamond faced charges from Lehman liquidators that he had been a tad lax on the verite about this and that. The case was dismissed, but later a group of shareholders came back with a similar charge – and that civil case is, I’m told, still outstanding.

During his evidence to Parliament in late 2010, Mr Diamond said he had “never called upon taxpayers’ money” during the credit crunch. This was an incorrect answer, as his Barcap outfit took a bridging loan from the US Fed to complete the Lehman deal. According to one Lehman insider later re-employed by Barcap, “The Barcap guys pitched up to be briefed after the deal, and it was clear they didn’t know the first thing about our desk. Diamond didn’t exactly do what you’d call due diligence”.

It also looks like, at some time during 2005/6, Bob the *anker was a little light on character judgement when it came to forming a partnership between Barcap and Geneva-based investment outfit Avendis.

Avendis Capital was founded  in February 2001 by four partners – Eric de Sangues, Yannis Bilquez, David Benichou and Marco Rigo. In 2002 the company diversified into investment management and launched Avendis Enhanced Fixed Income, described by de Sangues at the time as one of the world’s first ‘correlation hedge funds’. The use of a meaningless four-syllable jargon word there is par for the course with Eric: in 2005 he gave out with this complete bollocks to Hedge Weekly:

“The fund develops relative value strategies in the capital structure of synthetic static CDOs through 2 different approaches both quantitatively driven. Bespoke static Synthetic CDO Tranches are used to build exposure to investment grade credit idiosyncratic risk [and we] trade Standard index tranches of iTraxxIG and DJ CDX IG. The strategy takes advantage of structural dislocations in the correlation market, and increased liquidity of the Index Tranche market, to generate alpha through momentum and mean reverting relative value trades in the capital structure.”

There are a great many former Barcap/Avendis investors who would give a lot for just one chance to exert some structural dislocations closely correlated with Eric’s neck, but anyway Barcap’s Diamond Geezer liked the cut of his jib, and in 2006 together they launched a fund called Golden Key.

Golden Key was a type of structured investment vehicle (SIV-lite) pioneered by Barclays Capital. So Diamond can’t wriggle put of this by citing ‘bad advice': Avendis was merely the vehicle for something Barcap had already invented. It was based on toxic mortgage crap: and as this was already a known risk, one could debate for hours as to Barclays’ motives for wanting a vehicle not called Barclays to market it. Certainly, shifting several billion in radioactive isotopes off the books is never a bad idea.

The whole thing turned to poo-poo quite quickly.

On 30th November 2007, Yannis Biquez was arrested by the Geneva police and charged with offences involving ‘betraying the confidence and embezzling the money of investors’. He was eventually found guilty of embezzzling $20m in 2008, but just three weeks after his arrest, Barclays Capital lent Avendis $1.5 billion. The reason given to the shareholders was ‘severe liquidity troubles in the financial markets’, something of an understatement as the loan was equal to the value of the entire assets under management by Avendis.

Barclays shareholders may well ask themselves whether this was an entirely wise move in the circumstances. While regulators might wonder if other agendas were in play.

On November 2008, there was more bad news: the authorities issued fines totalling
€100,000 against Avendis Capital SA, for ignoring short-selling rules  issued by the EU. This was also the year that the company’s investors got together to sue Avendis…. because they believed BarCap had used the SIV-lites, via borrowings, to take the toxic securities off Barclays’ accounts. The case alleged that Avendis directors and senior Barcap investors all conspired to carry out this dumping of cancerous junk, but I’ve no idea what gave them that idea. Heard in New York, Barclays hired a smart lawyer to find a hole in it the case was thrown out on a technicality.

Now, however, wealthy Geneva investor Philippe Rebourg of Coficap seems to have hard evidence…in the form of emails from Avendis and Barclays’ executive, Kelsey Burr, detailing their cozy relationship – and an alleged plan to screw investors in the name of saving Barclays’ balance sheet.

Rebourg has told  Teri Buhl that he expects it will take two to three weeks for the judge to rule; and as it happens, there is also a changing of the guards in the Geneva A.G. office: incoming Attorney General Michael Lauber has told local media he is up for the idea of filing claims against bankers for financial crimes.

The key name in a lot of these emails is senior Barclay’s executive Kelsey Burr. Spookily, as soon as Rebourg began  negotiating with Barcap this summer just gone, Kelsey suddenly left the company. Insiders tell me 38 year-old Burr was in fact disappeared, but if there just possibly might be any guilty secrets relating to his severance, then he’d be unlikely to have done so without taking some hush-money.

As Mr Burr was Director of Equities and Funds Structured Markets at Barcap, we can assume that CEO Bob Diamond was more than a passing acquaintance. And his departure from Europe to nearby Chicago happened very soon after this this whole mess blew up, I suppose it’s possible that a degree of ‘out of sight, out of mind’ was involved – I couldn’t possibly comment.

As for the $1.5bn loan, it’s all gone. The latest listing for Avendis Capital simply says ‘out of business’. But of course, along with that lost loan went a lot of extremely smelly balance sheet doo-doo…and banking is all swings and roundabouts in the end, isn’t it?

But where are they now, these fine inventive men of Avendis, in which Barclays CEO Bob Diamond had such great faith?

Eric de Sangues works at No 60 Wall Street, where he is employed by Deutsche Bank.

David Benichou now works as a Senior Portfolio Manager at HSBC in Geneva.
 
 Marco Rigo is Quantitative Analyst at Pictet Asset Management
 
 Yannis Bilquez is in prison near Geneva

Were I a Barclays shareholder, I’d be keeping a close eye on this one.

Related: What was Bob Diamond’s involvement in the 2008 Libor scandal?

Bob Diamond and the Lehman acquisition

28 thoughts on “SCANDAL AT BARCLAYS: WHY AVENDIS LOSERS WILL SUE THE BANK

  1. I saw this one and welcome your take on the issues involved. Where there is something like this then there is usually something else and more. This one could be a major event of 2012.

  2. Barclays are also implicated in the alleged Libor fixing. Etc etc. Nobody’s got clean hands it seems. Happy New Year to all and my thanks to John for his excellent and vital work.

  3. The adventures of Black Bob??? Good God, you mean you’re old enough to remember The Dandy “Wonder Dog”?

    Seriously, I always had a visceral feeling that Bob wasn’t a diamond. That feeling was not just because he was an investment banker…

    • I never trusted that sheepdog. Alf Tupper was the man.

      A Happy New Year to all, and especially John (who needs to do some due diligence on his gold holdings).

  4. Cheer up! Never mind the forecast for 2012.
    There’s light at the end of the tunnel ?
    “Long-term forecasts by investment bank Goldman Sachs suggest the UK will fare better than its neighbours over the next four decades. Britain is the third biggest economy in Europe behind Germany and France, but by 2050 it will have leapfrogged both countries.”
    I shall sleep, deep contented sleep on hearing this!

    • @george – thanks for that link, its always good to have transcripts

      MF Global filed for Bankruptcy on October 31, 2011.

      Louis Freeh (former head of FBI) is working with the Bankruptcy Court judge, the SEC is on the case as are the relevant committee’s in Congress.

      So, MF Global isn’t “still in business” and its managers are certainly being investigated. But I’m not sure if thats true of regulators like the Merc. No one has been charged. MF Global has deep links to the Democrats.

      When Ann Barnhardt shut down her brokerage and wrote an open letter to her clients the MSM branded her as a religious nut.

      Happy New Year

      • “MF Global has deep links to the Democrats.”
        And in that statement lays the inevitable outcome: No one charged and it all swept under the carpet courtesy of JC’s best friend, BO…..it’s not rocket science, it’s the way things are these days….

  5. It is ‘oh so clear’ why we are advised to wash hands after holding money, contaminated as it is by so much doo doo! I now favour the ‘Shell (out) Suit’ to protect from such super poopers. All in one with marigolds attached is such a fetching look!!!

    Happy 2012 one and all, and a personal thanks, JW, for saying what we all think, generally, in friend speak!

    I propose that for 2012 the TBTF is changed to TCTCF(B) ie. Too Connected to Contemplate Failure (Bollocks!!)

    x

  6. Well Happy New Year everybody.Resist the temptation to buy residential stuff in London or the south east during 2012,gold,gilts,works of art and the FTSE for three months,but granting September 2012 300 puts at 30p or so in dear old M&S looks like a reasonable way to pay the wine merchant..

  7. John – Great write up but since I broke this news journalistic standards are for you list that fact in your 1st paragraph. Also your post reads like you have copied some of my sentences. Please fix that.
    Thank You.

    • Is Teri Buhl your real name or a homophonic nom de plume alluding to your use of our language? I think we should be told.

    • Dear Teri
      I have credited you in para 1 as you reqested. As to any cut and paste from your article, I don’t agree. Only about a quarter of my piece relates to yours. There is one para of six lines in which I have used your phrase ‘change of the guard’, and in which you are credited. Just a few points I’d add:
      1. I’m not a professional journalist, and therefore see no reason why I should adhere to the standards of your ‘profession’. If I did that, I’d be hacking phones, yelling through celeb letterboxes, and framing French IMF
      bosses. I knock out two-three pieces every day for nothing. None of them are ‘lifts’ except in the sense of anyone using news wires to follow ongoing story progress.
      2. You broke a story about one investor having obtained emails; that’s a break, so well done. But I’ve been on Diamond’s case for two years, and was a prime mover in getting the Libor scandal into the open. I have yet to get a credit from any of your esteemed colleagues. I also broke 3 exclusives on the Strauss-Kahn disgrace, all of which were followed up by the MSM. Again, no credit. Most ‘professional’ sites no longer even allow urrls.
      3. There is a great deal of original research by me in this piece which isn’t in yours. I’m happy to give you the para 1 credit, so maybe a follow-up on your site with a link to mine would be nice? If nothing else, it would be a
      first.
      There are few sights less appropriate and more comical than a journalist on a high horse, Teri. I suggest you lighten up.
      JW

      • I’m not a professional journalist, and therefore see no reason why I should adhere to the standards of your ‘profession’. If I did that, I’d be hacking phones, yelling through celeb letterboxes, and framing French IMF bosses.

        Yes!!

  8. Is this better then a Ponzi Scheme, is it legal and can Joe Public join in, or is Joe Publics function just to spectate and pick up the tab??
    1] A central bank creates a credit, call it QE,
    2] They then loan this money to individual banks at MLR + 0.5% [UK = 1%]
    3] The government then sells its debt, Government Bonds UK 3-5%
    EU average 5-7%
    4] The individual banks then buy these Government Bonds
    5} The individual bank makes a profit on these loans. The Loan Ar-Ranger, pockets his/her commission for doing this. Tonto, or the Government, believe that they are managing the economy just fine, otherwise they could not sell on their debt.
    6] Joe Public, just remain on the side lines, complain etc, but just pick up the tab due to low % on our savings, or see the value of our savings erode by the cost of inflation?
    Or is there to be a sting and the MLR rises to its true rate RPI + 1%
    [UK 6%] the Bankers then have to find the extra %?
    Or is all the above just a dream and I will wake up soon?
    But John have a good Hol, I find your articles, first rate and the comments on them good also, plus a lot of the links are well worth following.

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