Anger at deal that safeguards bonuses

After resisting the urge to join the government bailout of banks, Barclays has secured a rescue package from oil-rich investors from the Middle East – a means of raising capital without jeopardising the multi-million pound bonuses that some of its staff will earn this year.

The British banks which accepted government help – Royal Bank of Scotland, Lloyds TSB and HBOS – accepted terms which included potential limits on executive pay. By finding another source of capital, Barclays executives such as Bob Diamond – one of the highest-paid men in the City who received £36m last year – will be able to maintain their vast remuneration packages. The move will add to the controversy about City bonuses at a time when bankers are being blamed for the credit crunch.

The Liberal Democrats' Treasury spokesman, Vince Cable, branded it "a scandal of mammoth proportions". "We have to ask why Barclays is willing to offer a better deal to foreign investors than the British taxpayer," Mr Cable said. "The answer is simple: they don't want the Government stopping them from paying massive bonuses to their executives.

Related articles

• Brown and Barclays go cap in hand to the Gulf
• PM knew of problems with Icelandic banks in March
• Search the news archive for more stories

"The Government should seriously be considering making it clear to Barclays shareholders that if they accept this deal, the bank will forfeit any future entitlement to protection from the taxpayer," he added.

The deal will see Barclays take about £7.3bn from investors based in Abu Dhabi and Qatar and was facilitated by Amanda Staveley, the fixer who brokered the £210m takeover of Manchester City football club by Abu Dhabi investors. John Varley, chief executive, said yesterday that wanting to stay free of government intervention was the driving force behind the decision.

"We need as much nimbleness and flexibility around our operational strategy," Mr Varley said on a conference call, although he was referring to challenges in the troubled global markets. "And the right of self-determination is a way of exercising that nimbleness." But Mr Diamond for one will be toasting the deal for other reasons. As the head of Barclays' investment bank, he has already taken advantage of the distress of his rivals by picking up part of Lehman Brothers' US investment banking operations on the cheap in September after the latter's collapse. He owns tens of millions of pounds worth of Barclays shares.

The rescue package leaves Abu Dhabi's Sheikh Mansour Bin Zayed with a 16.7 per cent stake in the bank and Qataris controlling 12.7 per cent of it. As the credit crisis limits the ability of British banks to raise capital from traditional sources, cash-rich investors from the Gulf states have become an attractive way of bolstering balance sheets.

But some existing Barclays shareholders are unhappy with the terms of the deal and believe that the bank would have been better off accepting help from the Government.