Tue, Dec 16, 2008 - Page 1 News List

Top banks reveal massive exposure to Madoff scheme


Top world financial groups yesterday revealed massive potential losses from an alleged scam run by Wall Street trader Bernard Madoff, admitting they were fooled by a classic pyramid investment fraud.

British, French, Japanese and Spanish banks and funds said investments totalling billions of dollars could be wiped off their balance sheets.

British bank HSBC, the world旧 third-biggest bank by capitalization, said it had exposure of about US$1 billion to the scheme.

Royal Bank of Scotland said it could lose about ?00 million (US$598 million), joining a growing list of banks and investors in Europe, Asia and the US struck by the scandal.

Shares in Santander, the biggest bank in Spain and No. 2 in Europe, plunged after the lender said it had an exposure of more than US$3 billion to Madoff Investment Securities in New York.

France旧 Natixis investment bank put its maximum exposure at 450 million euros (US$606 million). BNP-Paribas revealed potential losses of 350 million euros.

Japanese financial giant Nomura said it could lose up to US$303 million and officials in South Korea said financial institutions there had a total exposure of US$95 million to the scheme.

Madoff, a 70-year-old Wall Street veteran, was arrested on Thursday.

He is alleged by US prosecutors to have confessed to defrauding investors of US$50 billion in a long-running scam that collapsed after clients asked for their money back as a result of the global financial crisis.

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 the scheme.

The scheme apparently worked as long as he could attract new investors, but seems to have unraveled when some clients asked to withdraw their principal.

This fraud is known as a 禅onzi scheme?after a US swindler from the 1920s, Charles Ponzi, who cheated thousands of mostly small-time investors of their savings by promising returns of 40 percent by means of foreign exchange arbitration on international reply-paid postage stamps.

Britain-based hedge fund manager Man Group said it had invested US$360 million in Madoff Securities.

British property magnate Vincent Tchenguiz, one of the UK旧 richest people, was reportedly potentially affected to the tune of millions of pounds.

Also See: Madoff’s charm too good to be true

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