US pyramid fraud scam hits Europe's biggest bank
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 Wall Street
figurehead Bernard Madoff.
British, French, Japanese and Spanish banks and funds said
investments totalling billions of dollars (euros) could be wiped
off their balance sheets by a scandal that is set to affect some of
the richest people in the world.
"In the interests of clarity, HSBC confirms that it has provided
financing to a small number of institutional clients who invested
in funds with Madoff," London-based HSBC said in a statement.
"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)."
Royal Bank of Scotland said it could lose about 400 million
pounds (598 million dollars, 444 million euros) and two British
investment funds announced potential losses in the hundreds of
millions of dollars.
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 a total exposure of some 95 million dollars to
Madoff's scandal-hit investment scheme.
Madoff, a 70-year-old Wall Street veteran, was arrested last
Thursday.
He is alleged by US prosecutors to have confessed to defrauding
investors of 50 billion dollars in a long-running scam that
collapsed after clients asked for their money back as a result of
the global financial crisis.
Banks have rushed to disclose potential losses in an apparent
bid to avert any deepening of the suspicion which has frozen credit
markets, and in stark contrast to reticence as the subprime
mortgage crisis unfolded.
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 in what
is known as a "pyramid fraud".
The scheme apparently worked as long as he could attract new
investors but seems to have unravelled when some of Madoff's
clients asked to withdraw their investment -- only to discover that
his seemingly brimming coffers were empty.
This fraud is also known as a "Ponzi scheme" after a 1920s US
swindler from the 1920s, Charles Ponzi, who cheated thousands by
promising returns of 40 percent through foreign exchange
arbitration on international postage stamps.
British investment fund Bramdean Alternatives Limited, which
revealed it had put about 31.2 million dollars in Madoff's company,
said that 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.
Britain-based hedge fund manager Man Group said it had invested
360 million dollars in Madoff Securities. The fund said in a
statement that "it appears that a systematic and comprehensive
fraud may have been committed."
Property magnate Vincent Tchenguiz, one of Britain's richest
people, was reported to be potentially affected to the tune of
millions of pounds by the scam, which the Wall Street Journal says
has also hit wealthy US investors.
Spain's El Pais newspaper reported that the country's
second-biggest bank, BBVA, could lose hundreds of millions of euros
in the scam. The report said "some managers put the figure at
around 500 million."
French insurance giant Axa on Monday said that its potential
losses were below 100 million euros and top banks Societe Generale
and Credit Agricole each said that their exposure was under 10
million euros.
Italy's biggest bank, UniCredit, said that its exposure was
around 75 million euros and that one of its investment unit may
also have been indirectly affected. Banco Popolare said its
exposure amounted to 68 million euros.
In Switzerland, Geneva private banks could lose up to five
billion dollars (3.7 billion euros) in the scam, Swiss newspaper Le
Temps reported, while private bank Reichmuth & Co said it may
have lost 328 million dollars.
Sweden's Nordea banking group said its exposure was 48 million
euros.
Germany's Deutsche Bank and Commerzbank have declined to comment
on the effects of the Madoff scam. A spokesman for Commerzbank told
AFP that there would be no comment on particular investments
because of "banking secrecy."
