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US pyramid fraud scam hits Europe's biggest banks
2008-12-15
LONDON (AFP) - Europe's biggest bank, HSBC, joined a list of top names in world finance admitting huge potential losses on Monday in a suspected pyramid fraud scam run by ex-Wall Street heavyweight Bernard Madoff. Shares in Santander, the biggest bank in Spain and the second-largest in Europe after HSBC , plunged after the lender said it had an exposure of more than three billion dollars to Madoff Investment Securities in New York. And Fortis Bank Netherlands said it stood to lose up to a billion euros in the suspected scam, even though it had no direct exposure to Bernard Madoff Investment Securities LLC. "Parts of the group do have a risk exposure to certain funds it provides collateralised lending to," the bank said in a statement. "If, as a result of the alleged fraud, the value of the assets of these funds is nil and the respective clients cannot meet their obligations, Fortis Bank Nederland (Holding) N.V.'s loss could amount to around 850 million euros to one billion euros" (1.2 to 1.36 billion dollars), it added. British, French, Japanese and Spanish banks and funds said investments totalling billions of dollars could be wiped off their balance sheets in a scandal set to affect some of the world's richest people. "On the basis of information presently available, HSBC is of the view that the potential exposure under these financing transactions is in the region of one billion US dollars (740 million euros)," the London-based HSBC said. Royal Bank of Scotland said it could lose about 400 million pounds (598 million dollars, 444 million euros). France's Natixis investment bank, already brought low by subprime losses, put its maximum exposure at 450 million euros (606 million dollars). Retail banking giant BNP Paribas revealed potential losses of 350 million euros. Japanese financial giant Nomura said it could lose up to 303 million dollars and officials in South Korea said financial institutions there had a total exposure of some 95 million dollars. Madoff, a 70-year-old Wall Street veteran, was arrested on Thursday, and is alleged to have confessed to defrauding investors of 50 billion dollars in a scam that collapsed after clients asked for their money back due to the global financial crisis. International Monetary Fund chief Dominique Strauss-Khan said he was shocked US regulators had failed to identify and prevent the fraud. "The surprise is not that there are some thieves in the system, the question is where were the police? It's very surprising to find you're living in a system where a failure of the regulatory system was so big," he told a news conference in Madrid. Banks have rushed to disclose potential losses in an apparent bid to avert any deepening of the suspicion which has frozen credit markets. US authorities allege that Madoff delivered consistently strong returns to clients by secretly using the principal investment from new investors to pay out to other investors in what is known as a "pyramid fraud". US Vice President Dick Cheney said in a radio interview that the alleged scam by the former chairman of the Nasdaq was "very disturbing" but blamed a few "bad apples." "Unfortunately, we've always had some bad apples ... at the scene who just involve themselves in out-and-out theft, which I think is probably what happened here," Cheney said. The scheme apparently worked as long Madoff he could attract new investors but seems to have unravelled when some of his clients asked to withdraw their investment -- only to discover that his seemingly brimming coffers were empty. British investment fund Bramdean Alternatives Limited, which revealed it had put about 31.2 million dollars in Madoff's company, said the scandal raised "fundamental questions" about the American financial regulatory system. "It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds in good faith," the firm said in a statement. Spain's El Pais newspaper reported the country's second-biggest bank, BBVA, could lose around 500 million euros in the scam . Italy's biggest bank, UniCredit, said its exposure was around 75 million euros and one of its investment units may also have been indirectly affected. In Switzerland, Geneva private banks could lose up to five billion dollars (3.7 billion euros), Swiss newspaper Le Temps reported.
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