Wednesday, 28 January 2009

Banco Santander, Spain’s largest bank, has offered to pay 1.38 billion euros, or $1.8 billion, to reimburse private banking clients

Banco Santander, Spain’s largest bank, has offered to pay 1.38 billion euros, or $1.8 billion, to reimburse private banking clients who had invested with the disgraced financier Bernard L. Madoff, a settlement that could prompt other financial institutions to follow suit. The offer, which does not apply to institutional investors, was announced Tuesday as investors brought a class-action suit against the Spanish bank in Federal District Court in Miami. They accused the bank of not adequately scrutinizing the Madoff investments, according to Bloomberg. The offer is an indication of Santander’s desire to preserve its image as a conservative institution that prides itself on having avoided the troubles plaguing other big banks because it shunned exotic financial instruments. Santander said in December that it had an exposure of $3 billion to Mr. Madoff’s firm, the largest of any commercial bank. The money was invested through a Geneva-based hedge fund unit, Optimal Investment Services. Mr. Madoff was arrested Dec. 11 and accused of running his investment business as a Ponzi scheme that paid generous returns to investors using money fed into it by new victims. Santander said in a statement Tuesday that the bank had acted “at all times with the due diligence” and “in accordance with all applicable laws and sound banking practices.” The bank’s offer to reimburse clients was “based exclusively on business considerations, namely the group’s interest in maintaining its business relationships with those clients,” the statement said.
Santander said clients would receive a quantity of preferred shares in the bank equal to their initial investment. They would receive a coupon of 2 percent a year on the shares. A spokesman for the bank, who spoke on condition of anonymity in line with the bank’s rules, said the shares could be traded. The bank would have the option to buy the shares back after 10 years. The bank also announced Tuesday that Optimal would close seven of its funds because clients had been withdrawing money from them.

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