Sunday, December 14, 2008

Spain's Grupo Santander on the hook for Madoff's losses

European banks, including Spain's Grupo Santander SA and France's BNP Paribas, said Sunday their clients and shareholders face billions of euros of losses on investments with Bernard Madoff, underscoring the global reach of the alleged Ponzi scheme run by the veteran New York money manager.

Santander, the eurozone's largest bank by market value, said its clients had an exposure of €2.33 billion ($3.1 billion) to Madoff's investment funds, mainly through its Optimal Strategic US Equity fund. More than €2 billion belongs to institutional investors and international clients of its private-banking business, which provides services to wealthy individuals, it said. The remaining €320 million belongs to private-banking customers in Spain, where Santander is based.

BNP, France's largest bank by market value, said it could lose as much as 350 million euros as a result of the alleged fraud. The bank said it has no investment of its own in the hedge funds managed by Bernard Madoff Investment Services. BNP Paribas, however, said it is exposed to these funds through its trading business and lending to hedge funds that had invested in Madoff's funds.

The losses could prove particularly embarrassing for the big banks' private-banking businesses, which charge high fees to wealthy investors in return for what is supposed to be superior investment advice and due diligence. Most of the exposures were on client investments managed by the banks, rather than on the banks' own balance sheets. It's not yet clear how much, if anything, investors in Madoff's funds may be able to recover.

Santander, which has so far survived the global financial crisis relatively unscathed, said it had hired Madoff's firm to execute the Optimal fund's investments. Santander vowed to "undertake the legal actions which may be needed to defend the interests of investors." The bank said its own direct exposure was only €17 million.

How is that? They put the clients in the fund, and it was a fraud, while the bank had less than $25 million of exposure. What legal action can they take against money that isn't there? But Santander has plenty of money, and that's where the legal action will be taken. From those suing the bank!

And he/she who sues Santander, is the one who has the best chance of recouping their losses with Madoff. How did Santander act as a fidiciuary in this mess?

They didn't.

So they pay.

And those will be the first "victims" that will recover. Next will be the $4 billion in Swiss banks, the $350 million in Man group, and $835 million in UniCredit SpA invested on behalf of their clients.

After all, didn't Santander pay up for those invested in Lehman's paper?

After all, doesn't Santander say, "We are completely committed to the protection and growth of your net worth, striving to develop exclusive investment strategies to help you achieve your financial goals."

We'll soon see what their definition of committed is!


Anonymous said...

Spot on - Santander has little wriggle room. Optimal claimed to(the Madoff vehicle) “enjoy the stability and security of the world’s ninth largest bank (by market capitalization), together with the reassurance of rigorous internal controls and procedures”

Rigorous my a**... and they seem to agree, as the website has since been modified to remove any suggestion that they actually do anything.

Anonymous said...

see the blog for more detail on santander/madoff...