Madoff exposure spreads

Man Group and HSBC among the financials reporting holdings with Madoff Securities, which is involved in an alleged fraud scandal in the US Editors 15 December, 2008 | 1:58PM
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UK financials and hedge fund group Man Group has said it has approximately $360m invested in two funds that are directly or indirectly sub-advised by Madoff Securities. Last week Bernard Madoff was arrested in New York on charges of an alleged fraud estimated to be worth some $50bn.

According to Man Group, although Madoff Securities is an SEC registered broker dealer and subject to the rules of five self regulatory organisations, including Nasdaq and NY Stock Exchange, based on information available to date, it appears a systematic and comprehensive fraud may have been committed, evading a range of structural controls.

Man's exposure to the troubled group is through RMF, its predominantly institutional fund of funds business, and represents 1.5% of its assets under management. The exposure is reportedly just 0.5% of funds under management for Man Group as a whole. Shares in Man in the FTSE 100 have held up well despite the bad news. Share price of the group moved up 2.50% to 251.25p as of 1:30pm today.

As reported this morning, the Royal Bank of Scotland said its potential losses could hit $400m if Madoff's funds are valued to zero. Since then other financials have also revealed their potential exposure to the US-event, including HSBC. The bank said its exposure to the alleged fraud at Madoff Investment Securities, which is under criminal investigation in the US, is in the region of $1bn via loans to a number of institutional clients who invested funds with Madoff.

Shares in HSBC have fallen today, dropping almost 2% to hit a price of 721.25p as of 1:30pm.

Insurance group Axa has said its potential loss from exposure to Madoff is less than £100m, while French bank BNP Paribas is reported to have said it could lose €350m. Spain's Banco Santander, owner of UK financials Abbey, Bradford & Bingley and Alliance and Leicester, is said to have invested some €2.3bn from its hedge fund unit, while its competitor bank, BBVA, is reported as having revealed a potential loss of €300m.

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