Embattled Banker in New Fracas -- WSJ

By Jenny Strasburg, Patricia Kowsmann and Max Colchester Features Dow Jones Newswires

For Jes Staley, the embattled Barclays PLC chief, there's a new cause for worry: his brother-in-law and an angry client.

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Mr. Staley, facing a cut in pay and under investigation for trying to uncover the identity of a whistleblower, now is clashing with one of the bank's most powerful clients, KKR & Co.

According to people familiar with the matter, he waded into a messy dispute between the private-equity giant and his wife's brother, causing KKR to pull business from the bank.

At the center of the dispute is a Brazilian data-center company, Aceco TI, founded in 1972 by the family of Mr. Staley's wife, Debora Nitzan Staley. She and her brother, Jorge Nitzan, Aceco's then-chief executive, sold the bulk of their interest in the company to KKR in 2014 in a deal valued at around $700 million. Entities controlled by Ms. Staley and her brother received some $160 million and $80 million respectively as a result of the sale, according to people familiar with it.

A year later, Aceco was unraveling amid Brazil's tumbling economy, and KKR is fighting a pitched legal battle in São Paulo against Mr. Nitzan and the other sellers, which include Ms. Staley. KKR, with close to $475 million in Aceco equity at stake, is trying to get its money back.

KKR's beef with Mr. Staley is that he interceded on behalf of his brother-in-law, by trying to help find an investor late last year, after the 2014 acquisition went sour, and by vouching for him with KKR's two big co-investors in the deal. KKR's view, according to people familiar with it, is that Mr. Staley's actions could have hurt KKR's legal and financial options.

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Mr. Staley's view, according to people familiar with it, is that KKR improperly pressured him and is trying to turn a personal situation for the executive into a business matter for the bank. Mr. Staley has told multiple people that he wasn't acting in his capacity as Barclays's CEO when he interceded for his brother-in-law, and that his actions in the dispute were what anyone would do to defend a family member.

Barclays itself had no role in the Aceco deal. A spokesman for Barclays said, "Appropriate senior personnel within Barclays have been kept informed about this matter, and in particular regarding any management interactions with the parties concerned."

Recently, KKR executives have cut Barclays off from some of their business, people familiar with the matter said. A KKR spokeswoman said it has a responsibility to protect the interests of its investors, "who we believe were defrauded in the sale of Aceco." She continued, "We would also note that we have been a longtime client of Barclays, which comes with its own responsibilities for Barclays." Since 2010, KKR has paid Barclays $190 million in investment-banking fees, according to Dealogic data.

Mr. Nitzan, through a São Paulo-based spokesman, called accusations of fraud "baseless." "Mr. Nitzan is confident that the truth will prevail and that the accusations will be fully clarified in arbitration, " the spokesman added.

Mr. Staley, an American, worked in Brazil early in his banking career in the 1980s, met his wife there and has known her family for decades. He came to Barclays as chief executive in late 2015.

In a separate matter, U.K. regulators have been investigating the CEO after he tried to unmask a whistleblower who complained about one of Mr. Staley's top hires at Barclays. The board last month said it would commission independent reviews of the bank's controls and whistleblowing program. Mr. Staley has apologized to Barclays's board and in an email to staff last month said, "I got too personally involved."

KKR's acquisition of a controlling stake in Aceco was its first direct investment in Brazil. Aceco has built more than 800 data storage and processing centers in Brazil and Latin America; Mr. Nitzan and Ms. Staley each owned 26%, according to Aceco documents, and private-equity firm General Atlantic LLC held the remaining 48%. General Atlantic received some $290 million for its stake, according to people familiar with the 2014 sale. KKR got 87% of the company and Mr. Nitzan, who remained CEO, kept 12.5%.

In May 2015, KKR's head of Latin America in São Paulo got an anonymous email alleging Aceco's books had been manipulated since 2012, according to people familiar with the matter. The emailer also went to Brazilian police, alleging Aceco had bribed government officials with senior management's knowledge, these people said.

A KKR-commissioned accounting and legal investigation determined many of the anonymous emailer's allegations had merit, according to a report reviewed by The Wall Street Journal. It found Aceco made payments to some entities now embroiled in the sprawling bribery and corruption scandal in Brazil known as Car Wash.

KKR fired Mr. Nitzan in late 2015. And last year it marked its equity investment in Aceco down to zero, according to people familiar with the decision. Aceco officials didn't return calls.

The spokesman for Mr. Nitzan denies he was involved in fraud. KKR, he said, acquired control of Aceco "just before the worst recession in the history of the Brazilian economy," which hurt Aceco's finances and made KKR regret its investment and want to reverse it. The spokesman, on behalf of Ms. Staley, noted she inherited her Aceco stake and had no management role. A General Atlantic spokeswoman declined to comment.

Jockeying for control of Aceco and its assets intensified last fall, after the company fell behind on payments affecting $85 million in debt. An entity now fully owned by Mr. Nitzan bought a slug of debt in the Aceco holding company that was created as part of the 2014 deal -- which could have allowed him, as a creditor, to regain control of Aceco. KKR was taken by surprise, people familiar with the events said, and the company and Mr. Nitzan are waging battle over ownership in Brazilian courts.

Meanwhile, in September, KKR's private-equity chief for the Americas based in New York, Alexander Navab, placed a call to Mr. Staley to lay out KKR's side in the conflict and see if Mr. Staley could influence Mr. Nitzan, according to people familiar with the call.

The call was brief, and Mr. Staley didn't agree to intercede, people familiar with the matter said. KKR executives hoped Mr. Staley would get back to them. A person close to Mr. Staley said he viewed the call as confrontational.

Soon afterward, Mr. Staley suggested to a longtime friend, Timothy Collins of New York-based Ripplewood Advisors LLC, that he consider investing in Aceco. Mr. Staley described Mr. Nitzan as a "good guy," according to people familiar with the conversation.

In December, as Mr. Collins explored such an investment, he contacted KKR -- and was surprised when, through an intermediary, KKR suggested he steer clear, according to some of the people familiar with the talks.

With the ownership of Aceco in dispute, KKR viewed any deal involving Mr. Nitzan and an outside ally as limiting KKR's legal options, people familiar with KKR's thinking said. Mr. Collins stayed away.

Meanwhile, KKR learned that Mr. Staley, while traveling on Barclays business, had discussed Aceco in private conversations with two KKR co-investors, the Teacher Retirement System of Texas and GIC, Singapore's sovereign-wealth fund, according to people familiar with the matter.

Answering questions from senior executives at the funds, Mr. Staley told them he was standing by Mr. Nitzan, who he didn't believe would commit fraud, people familiar with the conversations said. Mr. Staley's view was that KKR had bought a good company but at a bad time. A person familiar with Mr. Staley's thinking said that when the executives asked him about the allegations about his brother-in-law, he felt he should give them honest answers.

GIC and the Texas pension fund declined to comment.

After learning of these conversations, KKR executives discussed whether to call the Barclays board to complain, a person familiar with the matter said. Instead, in mid-March, KKR's Mr. Navab called Mr. Staley again.

Mr. Navab noted KKR hadn't heard from Mr. Staley after their September call, yet Mr. Staley had intervened on behalf of Mr. Nitzan, people familiar with the call said. Mr. Staley was vehement that he would continue standing by his family, the people said.

Write to Jenny Strasburg at jenny.strasburg@wsj.com, Patricia Kowsmann at patricia.kowsmann@wsj.com and Max Colchester at max.colchester@wsj.com

(END) Dow Jones Newswires

May 03, 2017 02:48 ET (06:48 GMT)