Banks Hit by Pyramid Scam

Banks from all over the world faces huge losses from a suspected pyramid fraud scam managed by former Wall Street heavyweight Bernard Madoff.

The following banks have so far disclosed their exposure to Madoff Investment Securities in New York following his arrest last week.

HSBC, one of the world’s largest banking groups, could lose $1 billion, it announced Monday, adding to a litany of expected losses across some of Europe’s leading financial houses.

The Royal Bank of Scotland told CNN its hedge funds had exposure of up to £400 million ($600 million) to funds managed by securities broker Bernard Madoff.

In France, BNP Paribas said Sunday its maximum potential loss was about €350 million euros ($468 million).

And in Spain, Banco Santander said it had a direct exposure of €17 million while clients of its hedge funds had €2.33 billion at risk in Madoff’s firm. The country’s second-largest bank, BBVA, said it could lose up to €300 million.

Japan’s Nomura on Monday said it had ¥27.6 billion ($303 million) of exposure, but that the impact on its capital would be limited.

Madoff, a former chairman of the Nasdaq exchange market, was arrested on Thursday, and is alleged to have confessed to defrauding investors of 50 billion dollars. He was charge for operating a $50 billion Ponzi scheme from his investment advisory business.

A Ponzi — similar to a pyramid scheme — is an investment fraud in which high profits are promised to investors from fictitious sources. Early investors are paid off with funds raised from later ones.

~ by topofthenews on December 16, 2008.