A massive US fraud scandal involving the former chairman of the Nasdaq stock market, Bernard Madoff is set to hurt several major European banks. France’s BNP Paribas, Spain’s Santander of which Britain’s Abbey is part, and the Swiss bank UBS have all warned that their clients and shareholders face billions of euros of losses on investments with Madoff’s company.
Analyst Marc Touati said: “Not all financial markets are like this. Unfortunately, this really is the exception that proves the rule, that despite tight regulations, someone manages to slip through the net – but it has to mean that there has been a certain amount of complicity here.”
The exposure of European banks is far reaching. BNP says it could lose as much as 350 million euros, Santander which has so far survived the global financial crisis relatively unscathed could lose over 2.3 billion euros and UBS over 3 billion euros.
Blame is being levelled at US financial regulators for not scrutinising Madoff’s company and being blinded by his former reputation at the Nasdaq. The 70-year-old allegedly set up a so-called pyramid scheme whereby participants were promised very high returns on their investments while in reality only those who joined early enough got paid from funds collected from later investors.