HSBC discloses $1billion exposure to Madoff fraud
16 Dec 2008
HSBC, the world's third-biggest bank by market capitalisation, said on Monday it had exposure of about $1 billion to suspected fraud by US financier Bernard Madoff.
"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," it said. "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."
"Also, in the context of its normal global custody business, HSBC has custody clients who have invested with Madoff. HSBC does not believe that these custodial arrangements should be a source of exposure to the group," it added. The statement came after the Financial Times quoted "people close to the situation" as saying the bank could face huge losses in the collapse of giant pyramid scheme.
HSBC's exposure arose from loans it had provided to large clients, such as hedge funds of funds, which wanted to invest with Madoff who is alleged to have lost $50 billion of investors' money. Major international investors such as Spain's Santander, French bank BNP Paribas and Japan's Nomura have all revealed they face potential losses from the collapse of the fund.
Banco Santander said it has a $3.1 billion exposure to Madoff-linked investments, France's BNP Paribas said it had $472.0 million indirectly at risk, and Royal Bank of Scotland said it has $600 million in exposure. (See: Madoff's Ponzi scam hits Wall Street)
US authorities announced the arrest on Thursday of Madoff, a brokerage veteran who once epitomised the massive profit making on Wall Street but has quickly become a symbol of the sector's even more spectacular decline. According to prosecutors, the 70-year-old confessed to employees at his brokerage that he had been running a so-called Ponzi scheme, or pyramid fraud, which had collapsed with the enormous losses. (See: Former NASDAQ chairman charged with $50-billion securities fraud)