Spain's largest bank Santander said customers of its hedge fund Optimal have an exposure of €2.33 billion to the alleged fraud committed Madoff. The bank, Europe's second largest by market capitalisation, also said it had invested €17 million of its own funds in Madoff products. “The exposure of Santander customers in Optimal Strategic is €2.33 billion, of which €2.01 billion is from institutional investors and customers from private international banking,” it said in a statement. Madoff was arrested last week for allegedly defrauding his customers through a giant pyramid scheme, with prosecutors alleging that the 70-year-old, a decades-long veteran of Wall Street, confessed to losing at least $US50 billion ($75 billion) in the so-called Ponzi scheme. Madoff's company, Bernard L. Mr Madoff Investment Securities, attracted “the world's financial aristocracy,” said the Spanish newspaper El Pais. Among his clients were international banks as well as discreet private banks and companies involved in managing the fortunes of a single wealthy family. French bank BNP Paribas said it could lose up to €350 million in the scandal. BNP Paribas said that it had no direct investment with Madoff's company but “it does have risk exposure to these funds through its trading business and collateralised lending to funds of hedge funds”. “If, as a result of the alleged fraud, the value of the assets of these hedge funds is nil, BNP Paribas' loss could amount to around €350 million,” the bank said. Swiss bankers face losses of up to $US5 billion, Geneva's Le Temps newspaper said. It said that Union Bancaire Privee, a major asset management institution specialising in hedge funds, could be exposed to the tune of $US1 billion. UBP refused to comment on the report, which said that 90 per cent of fund management companies operating in Geneva invested in Madoff products.Among the small Swiss private banks,Reichmuth & Co warned investors that around Swiss francs 385 million ($493 million), or 3.5 per cent, of its assets under management, were affected by exposure to the alleged pyramid scheme run by Madoff.
In a letter to investors, the Luzern-based private bank said that its Matterhorn fund of hedge funds has exposure to several hedge funds which could be affected by the scheme. "Provided the mentioned hedge funds will have to face a total loss, the performance impact on Reichmuth Matterhorn would amount to 8.6 per cent," the bank said in the letter. Another Spanish fund manager, MandB Capital Advisor, headed by the son of Santander president Emilio Botin, could also be exposed up to hundreds of millions of US dollars. In the collapse of Lehman Brothers in September, Spanish investors had exposure of between €1.3 and €2.6 billion. In London, an investment fund that counted itself a client of Mr Madoff criticised the “systemic failure” of regulators in the United States. Bramdean Alternatives said the accusations against Madoff 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. Bramdean Alternatives invested around £21 million ($47 million), or around 9.5 per cent of its portfolio, with Madoff's company. Several British newspapers reported that among Bramdean's clients is property magnate Vincent Tchenguiz, one of Britain's richest men, who apparently invested £40 million pounds with the firm. A spokeswoman for Royal Bank of Scotland said that the bank had “some exposure” to Madoff's company, but declined to give details. Europe's largest bank, HSBC, meanwhile, declined to confirm any relationship with the alleged fraudster. Rumours talk of £400 millions lost.