As the world recoiled at the size and simplicity of Bernard Madoff's
fraud, banks in Europe were one by one admitting to potentially being
on the hook for millions through their exposure to the Wall Street
money manager's scheme.
HSBC
(nyse:
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), Royal Bank of Scotland
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RBS -
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) and Banco Santander are some of the most exposed lenders, in some cases having indirectly invested in Madoff's funds through hedge funds,
or directly through a private banking arm. Since news of his fraud
broke last Thursday, banks have been scrambling to calculate their
exposure to his firm and are now waiting for receivers to provide
further information on the total value of assets in Madoff's portfolio.
Unfortunately, there appears to be little hope that banks who
invested in Bernard Madoff Investment Securities will see much or any
of their money again. Madoff was arrested on Thursday after reportedly
confessing to running a "giant Ponzi scheme"
in which he lost $50.0 billion of his investors' money. His two sons
contacted authorities on the evening of Dec.10 after their father
admitted to the fraud. (See "Madoff's Money.")
RBS said Monday that it could lose as much as 400.0 million pounds
($599.4 million) because of "trading and collateralized lending to
funds of hedge funds that invested with [Madoff's] firm," the bank
said, without giving further details. British hedge fund Man Group said
it had approximately $360.0 million invested in two funds that were
"directly or indirectly sub-advised by Madoff Securities," representing
about 0.5% of its funds under management. Reports say that HSBC could lose as much as $1.0 billion through its exposure.
Banco Santander
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), one of Europe's most well-regarded banks for having largely avoided investing in the American subprime
mortgage market, said on Sunday that one of its investment funds had
exposure of 2.3 billion euros ($3.1 billion) to Madoff Securities. Most
of this was invested directly by the bank's investment fund, Optimal,
on behalf of Santander's overseas institutional investors and private
banking clients. Spain's Banco Bilbao Vizcaya Argentaria
(nyse:
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) had approximately 500.0 million euros ($673.3 million) of exposure to funds run by Madoff.
Investment bank Natixis
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)
appears to be one of the worst hit so far in France, after it said
Monday that it had exposure of up to 450.0 million euros ($600.3
million), while BNP Paribas
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) said its clients could lose up to 350.0 million euros ($471.3 million). Societe Generale
(other-otc:
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) said Monday that it had less than 10.0 million euros ($13.5 million) in exposure to Madoff. Credit Agricole
(other-otc:
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) was scheduled to release details of its exposure to the fraud later on Monday, but this was expected to be negligible.
The Madoff case is a clear setback for European banks that have been pining for the end of billions of dollars worth of
write-downs
and losses that followed the the subprime mortgage crisis. Some, like
Bramdean Alternatives, run by London-based fund manager Nicola Horlick,
have criticized American regulators for not catching Madoff's fraud
sooner. Horlick, who had 10.0% of her holdings exposed to Madoff,
reportedly said that the regulators had "fallen down on the job."
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