FBI diverts anti-terror agents to Bernard Madoff $50 billion swindle

December 22 2008

Brian A Pounds/Connecticut Post

From left; Doug Chavenello, president of Firefighters Union Local 1426, and Bob Smith, secretary, listen to the meeting of the Joint Retirement Board at Independence Hall in Fairfield. The town’s pension fund may have lost over $40 million in a scheme by Wall Street hedge fund manager Bernard Madoff

The FBI has been forced to transfer agents from its counter-terrorism divisions to work on Bernard Madoff’s alleged $50 billion fraud scheme as victims of the biggest scam in the world continue to emerge.

Only ten days after Mr Madoff confessed to his two sons that he had created a giant fraud, the FBI and the Securities and Exchange Commission (SEC), the Wall Street regulator, have narrowed the focus of their inquiries to ascertain which individuals and funds helped him. They are questioning other employees of Madoff Securities and are also examining the role of feeder funds that provided Mr Madoff with clients and capital.

It is understood that the US authorities believe it would have been impossible for the financier to have sustained a fraud of such magnitude over a number of years without significant assistance.

While the FBI and SEC trawled through documentation seized from three floors of the Manhattan headquarters of Mr Madoff, 70, more individuals and organisations who had fallen prey to the scheme were discovered. Members of the Fifth Avenue Synagogue, on the wealthy Upper East Side of Manhattan, are estimated to have lost about $2 billion (£1.4 billion) between them. Of these Ira Rennert, the chairman of the synagogue board, had about $200 million invested in the fund.

It is believed that J. Ezra Merkin, the president of the synagogue, introduced clients to Mr Madoff and gave him access to prominent Jewish charities and universities. The fund of Mr Merkin, Ascot Partners, had about $1.8 billion invested in the schemes.

At the weekend it emerged that Burt Ross, a former banker at LF Rothschild, and once the mayor of Fort Lee, New Jersey, was another victim. Mr Ross estimated that he had lost about $5 million, the bulk of his personal wealth.

Two classes of victim are emerging in the Madoff scandal: those who had a direct relationship with him and fund of funds investors, where one hedge fund invests in another. The biggest of the latter – so far – appears to be Walter M. Noel, who founded Fairfield Greenwich Group in 1983. Mr Noel marketed his investment services to the upper crust of the financial elite, introducing his international clients to Madoff funds.

Mr Noel ran his business from Connecticut, but about 95 per cent of his business was derived from overseas money. It is estimated that Fairfield Greenwich stands to lose $7.5 billion from the collapse of the Madoff scheme.

At the other end of the spectrum the town pension scheme in Fairfield, Connecticut — apparently unconnected to the fund belonging to Mr Noel – suffered a $45 million loss for its firefighters, police officers and teachers.

American regulators have sought to compile evidence against Mr Madoff, who is now electronically tagged and this weekend was placed on 24-hour curfew in his East 64th Street New York apartment.

The FBI and SEC are under increasing pressure from Washington to explain how they could have allowed a scam of such magnitude to operate and flourish – especially after a preliminary inquiry within the SEC found that it had been tipped off several times in the past decade about Mr Madoff’s schemes.

Harry Markopolos, a derivatives expert who once worked for a rival fund, spent ten years urging the SEC to investigate Mr Madoff. In numerous reports, including a 19-page document written in November 2005 entitled The World’s Largest Hedge Fund is a Fraud, Mr Markopolos picked apart the investment strategy of Mr Madoff.

Some claims by Mr Markopolos were anecdotal – “I have spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers I spoke with told me that Bernie Madoff was a fraud” – but vast chunks of his accusations involve detailed analysis of Mr Madoff’s investment strategy. He questions the way that Mr Madoff charged for commissions and alleges that Mr Madoff used the names of leading investment banks such as UBS and Merrill Lynch to lend credibility to his schemes.

He also claims that the overall investment strategy of Mr Madoff would have been impossible to carry out. Mr Madoff sought to lure investors with the promise of 12 per cent returns by buying blue-chip stocks and insuring against the possibility that their value would fall by selling derivatives – a process known as hedging. Mr Markopolos argues, however, that for Mr Madoff to have fulfilled such a strategy he would have regularly done more business than the entire New York market in those securities.

Barack Obama, the President-elect, has accused US regulators of being “asleep at the switch” after it emerged that Mr Madoff had been questioned by the SEC in 2006 but no fraud had been discovered.

Mr Madoff’s business has now been liquidated. He has been charged on one count of fraud and awaits trial.


Fairfield Greenwich Group (investment management firm) $7.5 billion

Tremont Group (hedge fund) $3.3 billion

Banco Santander (Spanish bank) $2.87 billion

Bank Medici (Austrian bank) $2.1 billion

Ascot Partners (hedge fund founded by J. Ezra Merkin) $1.8 billion

Access International Advisors (New York investment advisers) $1.4 billion

Fortis Bank Nederland (Dutch bank) $1.35 billion

Union Bancaire Privée (Swiss bank) $1 billion

HSBC (British bank) $1 billion

RBS (British bank) $599 million

Natixis (French investment bank) $554 million

Carl Shapiro (founder of Kay Windsor) $545 million

BNP Paribas (French bank) $431 million

BBVA (Spanish bank) $369 million

Man Group (British hedge fund) $360 million

Reichmuth & Co (Swiss private bank) $327 million

Nomura (Japanese broker) $304 million

Maxam Capital Management (fund of funds based in Connecticut) $280 million

EIM (European investment firm) $230 million

Aozora Bank (Japanese bank) $137 million

AXA (French insurer) $123 million

Yeshiva University (private, New York) $110 million

UniCredit (Italian bank) $92 million

UBI Banca (Italian bank) $86 million

Swiss Life Holding (Swiss insurer) $78.9 million

Great Eastern Holdings (Singapore insurer) $64 million

Nordea Bank (Swedish bank) $59 million

M&B Capital Advisers (Spanish broker) $52.8 million

Hyposwiss (Swiss private bank) $50 million

Banque Bénédict Hentsch & Cie (Swiss private bank) $48.8 million

Fairfield, Connecticut (town pension fund for firefighters, policemen and teachers) $42 million


Bad for investors, good for lawyers

City regulators probe Madoff’s London firm

Madoff’s UK arm holding £100m assets

Madoff house arrest ordered as European banks reel

Rescued bank to pay millions in bonuses

By Simon Bowers

November 1 2008

Royal Bank of Scotland, which is being bailed out with £20bn of taxpayers’ money, has signalled it is preparing to pay bonuses to thousands of staff despite government pledges to crack down on City pay.

The bank has set aside £1.79bn to cover “staff costs” – including discretionary bonuses – at its investment banking division for the first six months of the year alone. The same division caused a £5.9bn writedown that wiped out the bank’s profits for the same period.

The government had demanded that boardroom directors at RBS should not receive bonuses this year and the chief executive, Sir Fred Goodwin, is walking away without a pay-off. But below boardroom level, RBS and other groups are preparing to pay bonuses to investment bankers who continue to generate profits.

The disclosure drew fierce criticism from Vince Cable, the Liberal Democrat Treasury spokesman.

“The government said they would attach strict conditions on bonuses and it is very clear they are doing nothing of the kind.

“The banks are just making complete monkeys of them.”

He suggested the government would not have agreed to bail out any standalone investment bank. RBS and others had become “entangled with casino-style investment banking operations”, he said.

Despite the continuing financial turmoil and widespread criticism of the bonus culture in the City, the bank is understood to believe the payments are defensible.

A source said: “I think everybody would expect [that those responsible for writedowns] would not get a bonus. But there are people who still made fairly substantial money in other product areas – you cannot just not pay them bonuses, they will just go elsewhere.” Asked about the likely bonus culture after taxpayer-funded bail-out, the source said: “If the government does end up becoming a shareholder, RBS is still a listed entity. It remains the board’s responsibility to ensure it is run commercially.”

Several US politicians have seized on an investigation by the Guardian last month which showed six Wall Street banks – Goldman Sachs, Citigroup, Morgan Stanley, JP Morgan, Merrill Lynch and Lehman Brothers – had set aside $70bn (£42.5bn) in pay and bonuses for the first nine months of the year.

Five are in line to benefit from a $700bn US taxpayer bail-out. The sixth, Lehman Brothers, has collapsed – though not without securing considerable bonus payouts for staff in the US.

Henry Waxman, chairman of the House oversight committee, wrote to chief executives of America’s nine largest banks this week asking them to hand over information about their pay and bonus plans.

In his letter Waxman cites the Guardian report and says: “Some experts have suggested that a significant percentage of [bankers’ pay] could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds.”

Staff costs at RBS’s investment banking division include salaries already paid in the first six months of the year, national insurance and profit-sharing contributions as well as funds earmarked for end-of-year bonuses. The sum set aside is 20% lower than the equivalent figure for the first six months of 2007.

Banking sources privately acknowledge that the sight of these bonus accruals may provoke anger. They concede the industry’s pay and bonus regime is under unprecedented strain as it fails to reflect profitability, asset writedowns or share price declines.


Not really surprised to see some of  the bailout money is going to those who were in part, responsible for the down fall of the banks in the first place.

Governments should be protecting the taxpayer, not the bonues to those who messed up in the first place.

Why should we be surprised by this? Typical Government blunders are to be expected.  Either they don’t think or they don’t care about their citizens, as much as they pretend too.  This crisis was created in the US, flaunted around the world and now this  total insult to the taxpayers. As usual the rich get richer and the poor get ripped off. I am still waiting to see if and what has been investigated and what the findings are. This could be a very fraudulent set of events put into motion by a scrupulous few.

Create a Crisis, Fear and Solution. This method is as American as War or Apple Pie. This method has been used on the American people more times then one could ever imagine. Seems now they are using it around the world. Will we ever know the truth? Probably not.

This is a very informative Video, one of my Visitors gave me a while back. Very interesting indeed and an excellent Video. Be sure to take the time to watch it. You will be very enlightened by the end of it.  Could a Crisis be created? For sure.

The Money Masters – How International Bankers Gained Control of America

The banker who wouldn’t say sorry

The banker who wouldn’t say sorry

By Sean Farrell and Nick Clark

October 14 2008

He may have been forced to resign as chief executive of the Royal Bank of Scotland after going cap in hand to the Government for up to £20bn, but there was one thing Sir Fred Goodwin could not utter. Sorry is always the hardest word. Sir Fred, who earned £4.1m last year, said he would not have chosen to leave in the circumstances under which he is stepping down, but declined invitations to apologise for events that have seen RBS transformed from one of the top 10 banks in the world to a state-controlled lender.

RBS had already tapped shareholders for £12bn in June to shore up its threadbare safety buffer, but the record rights issue did nothing to maintain confidence. The bank was left exposed by its takeover of the Dutch bank ABN Amro last year and was hit by £5.9bn of losses this year after expansion into racy credit markets, including parcelling up sub-prime loans in the US.

Asked if he would like to apologise for the ABN deal, Sir Fred said: “The takeover of ABN Amro is not the cause of all this. We would be having a lot of these write-downs and difficulties and the world would still be in a financial crisis.” He will leave once he has handed over to Stephen Hester, the boss of British Land. Sir Fred said he would waive his right to a £1.2m payoff when he leaves, but he will be entitled to an annual pension £579,000.

Sir Tom McKillop, the chairman, who will stand down at next year’s annual meeting, said there was “some contrition” about the bank’s plight. Johnny Cameron, who runs the financial markets business that incurred the credit losses, left the board yesterday. His fate will be decided by Mr Hester.

Andy Hornby, the chief executive of HBOS, and his chairman, Lord Stevenson of Coddenham, will also lose their jobs when Britain’s biggest mortgage lender is swallowed by Lloyds TSB early next year. Mr Hornby is forfeiting his £940,000 payoff and Lord Stevenson will waive £710,000.

Sir Fred is just one of several victims of a crackdown on the City bonus culture championed yesterday by the Prime Minister. Senior executives at Royal Bank of Scotland, HBOS and Lloyds TSB are set to miss out on an almost £20m payday this year after Gordon Brown promised to wage war on bonuses for the bailed-out bankers.

Announcing the £37bn rescue package for banks, the Prime Minister attacked the culture of excessive bonuses, saying he wanted to “bring an end to rewards for failure”, adding: “The guiding idea is fair reward for hard work, effort and enterprise, not incentives for irresponsibility or excessive risk-taking for which the rest of us have paid.” He said the banks need to create “a system of remuneration founded on long-term success, not short-term irresponsibility”.

Mr Brown’s warning was backed by a notice from the Financial Services Authority, which wrote to all the chief executives of UK banks complaining that “inappropriate” bonus schemes were contributing to the crisis in the markets. The FSA’s chief executive, Hector Sants, wrote of the “widespread concern that inappropriate remuneration schemes may have contributed to the present market crisis”.

Three of the four other directors at RBS also received seven-figure performance fees in 2007. RBS said it would ban the bonuses this year, and look at an incentive scheme based on share awards from next year. At Lloyds, the chief executive, Eric Daniels, was awarded a bonus of £1.7m last year, part of an executive bonus pool worth £5.9m.

HBOS executives shared £3.9m. Peter Cummings, chief executive of corporate business, received a bonus of £1.6m, while chief executive, Andy Hornby, was awarded £449,000.

While the bonus crackdown will apply to board directors, RBS insisted yesterday that it would continue to offer “competitive” remuneration packages. City recruitment experts said bank staff below the top level were likely to continue to receive large payments, depending on performance.

The Centre for Economics and Business Research reported last week that bonuses in the City could plunge by more than half this year. in 2008, the bonus pool was £8.5bn. The research group has already slashed its predictions from £5bn, and predicted it could hit as low as £3.6bn as bonuses are restructured and headcount is cut.

The investment bankers tend to take the headlines when it comes to giant bonus payments. Among these were Bob Diamond, the president and head of investment banking at Barclays. His base salary was £250,000 last year, but with bonuses and options, his total remuneration was worth £18.5m.

Jon Moulton, the boss of the private equity group Alchemy Partners, told the Treasury Select Committee that linking bonuses to employee performance over just a year was “absolutely wrong”. “Salaries can be high but it’s the incentive payments that do the damage,” he said.

The FSA’s letter comes after the regulator held a series of “high level” discussions with London firms over their remuneration policies. it intends to visit the companies who have received the letter but would not become involved in setting remuneration levels.

The TUC criticised the regulator’s move as too soft yesterday. Brendan Barber, the general secretary, said: “Today’s FSA letter … simply sets out boxes to tick, and it has no teeth. We take the rather old-fashioned view that bankers, like the vast majority of people at work, should be paid a proper wage for doing a good job, and should not require bonuses to get up in the morning.”

The banking business: The bosses and their bonuses

HBOS: Andy Hornby, Chief executive
Salary: £940,000
Bonus: £450,000
Total: £1.39m

Lloyds TSB: Eric Daniels, Chief executive
Salary: £960,000
Bonus: £1.81m
Total: £2.77m

Barclays: John Varlet, Chief executive
Salary: £980,000
Bonus: £1.43m
Total: £2.41m

RBS: Fred Goodwin, Chief executive
Salary: £1.29m
Bonus: £2.86m
Total: £4.15m


Published in: on October 14, 2008 at 9:59 am  Comments Off on The banker who wouldn’t say sorry  
Tags: , , , , , , , , , , , , , , , ,

How the banking bail-out works

Oct 13 2008

The government’s emergency £37bn recapitalisation of the UK banking sector will mean widespread, fundamental changes at Royal Bank of Scotland, HBOS and Lloyds TSB. Barclays, Santander and Nationwide are also acting now to increase their capital bases.
The sheer speed of RBS’s decline is as dramatic as the parlous state it now finds itself in. Just a year after leading the €71bn (£56bn) acquisition of ABN Amro, the bank will be majority-owned by the UK government in return for up to £20bn of fresh capital. Chief executive Sir Fred Goodwin is carrying the can, leaving shortly and being replaced by Stephen Hester. The chairman, Sir Tom McKillop, will retire next April.

RBS will raise £5bn from the government by issuing preference shares (which are higher priority than standard shares and provide a protected dividend). These will yield 12% a year. It is also issuing £15bn of new ordinary shares at 65.5p each, which will be underwritten by the government. If the government takes up the full allocation, as expected, it will own around 60% of RBS.

RBS also admitted that it expects to suffer impairment charges and further asset write-downs in the fourth quarter of this year. Shareholders will not receive a dividend until the government’s preference shares have been repaid.

It has also yielded to the government’s call for an end to excessive pay. The board will not receive a bonus this year, and any bonuses earned in 2009 will be paid in shares.

Board members who are dismissed will receive a severance package which is “reasonable and perceived as fair”, it added, suggesting that existing contractual obligations will no longer carry much weight.

Shares in RBS have slumped by 85% in the last year. Having changed hands for 450p a year ago, they fell to below 60p this morning.
Lloyds TSB
The £5.5bn capital injection into Lloyds TSB is tied into its takeover of HBOS. The government had agreed buy £1bn of preference shares, and Lloyds will also raise £4.5bn through a rights issue at 173.3p a share which is underwritten by the government.

Lloyds has also forced HBOS to accept a lower price. It will now pay 0.605 Lloyds shares for each HBOS share, down from 0.833 shares each. This values HBOS at around £6.9bn, although the value of the all-share offer will continue to change in the current volatile markets. Unless other investors step in, the goverment will be left owning 43.5% of the enlarged bank. Existing Lloyds shareholders will own 36.5%.

It pledged to continue using HBOS’s site on The Mound as its Scottish Headquarters, to keep holding its AGM in Scotland and to continue to print Bank of Scotland notes.

Directors have been asked to take this year’s bonus in shares rather than cash. Lloyds also warned that any board member that loses the confidence of the board will be dismissed “at a cost that is reasonable and perceived as fair”.

Shares in Lloyds TSB have fallen around 63% in the last 12 months, down from 550p a year ago to just over 200p today.
HBOS had little choice but to accept a lower offer from Lloyds TSB, having seen its shares plunge as much as 40% on a single day last week.

It will receive £11.5bn from the government – £3bn in preference shares that will yield 12% a year, and £8.5bn through a rights issue at 113.6p a share. The government’s preference shares will be converted into Lloyds TSB shares once the merger goes through.

Britain’s biggest mortgage lender also admitted that market conditions have deteriorated significantly in recent weeks. It blamed falling house prices and the problems in the credit market, warning that underlying results for 2008 will be significantly lower than previously thought.

The chief executive, Andy Hornby, and chairman, Dennis Stevenson, will both quit when the Lloyds takeover goes through, ending speculation over their futures. Both had been blamed for HBOS’s demise.

Shares in HBOS have nosedived by 90% in the last year, from 880p each to just 85p today.
The Treasury had been expected to take a stake in Barclays. However, the bank said today it hopes to raise £9.5bn in fresh capital from investors without government help.

Under a plan that has been approved by the FSA, Barclays wants to raise more than £6.5bn through a series of new share issues, underwritten by the government, and at least a further £3.5bn through scrapping its dividend and other measures.

The bank said that an “existing shareholder” had agreed in principle to take up £1bn of shares, but if the rest of the issue is not taken up then the burden is likely to fall on the taxpayer.

In a blow to shareholders, Barclays is axing its annual dividend for this year, which would have been payable in April 2009, saving £2bn. It intends to resume dividend payments in the second half of next year. The bank will save another £1.5bn through “balance sheet management” and “operational efficiencies”.

If Barclays fails to raise capital from investors, it can call on the government for funding. The terms would be negotiated at the time and could be “less favourable” than those made available to other banks today, Barclays said.

Barclays also reported that it had traded “satisfactorily” in July and August. In September, profit before tax “very significantly” exceeded the monthly run rate for the first half of the year, thanks to strong contributions from global retail, commercial banking and investment banking, and strong inflows of new customers and customer deposits.

Shares in Barclays, which peaked at 769.36p in February 2007, have dropped more than 60% over the past 12 months. At the start of the year, they were worth 490.83p; this morning, they traded at 232p.
Alliance & Leicester/Abbey
Although it is not part of the UK government’s rescue bid, Spanish bank Santander has agreed to invest £1bn in its UK operations. It owns Abbey and Alliance & Leicester, which were previously estimated to have a Tier 1 ratio – a measure of capital strength – of 8% at the end of the year. The injection will improve the ratios by 1.25 percentage points. Santander also recently agreed to buy Bradford & Bingley’s branches and deposits.
HSBC said it would not be seeking government help as it had strengthened its capital base last week with an equity injection of £750m. The injection, funded through the group’s own resources, represented 1% of the total shareholder equity of the HSBC group.

“This fulfilled the bank’s agreed commitment under the UK government scheme,” said a spokesman. “We have no plans to utilise the capital being made available by the UK government.” However, HSBC welcomed the government’s efforts to “support the UK banking sector and restore confidence”. It added that it is doing its bit to stabilise the financial markets by providing “significant amounts of liquidity” to the London sterling interbank market ­— lending around £4bn of three-month and six-month money to other banks — and said it hoped others would follow suit.
Standard Chartered
Standard Chartered bank also announced that it had met the capital requirements set out in last week’s scheme and said it would continue to do so. Like HSBC, it welcomed today’s deal but declined to opt into the government’s recapitalisation scheme. “The group is well capitalised and highly liquid,” it said in a statement. “We will continue to manage our capital proactively, raising capital when and where necessary, consistent with regulatory requirements and the growth and needs of the business.
Nationwide is also not turning to the government for help. Britain’s biggest building society insisted today that is has no need for additional funds, but has agreed to support the government’s plan by raising £500m in fresh capital.

“This is a prudent step which reflects unprecedented market conditions,” said Nationwide, adding that it would raise this additional capital “through normal market channels between now and our financial year end.”


Published in: on October 14, 2008 at 1:56 am  Comments Off on How the banking bail-out works  
Tags: , , , , , , , , , , , , , , ,

£50bn ($88bn)UK Bailout Plan Announced

The UK government has announced details of a rescue package for the banking system worth up to £50bn ($88bn).

It will initially make the extra capital available to eight of the UK’s largest banks and building societies in return for preference shares in them.

It is “designed to put the British banking system on a sounder footing”, said Prime Minister Gordon Brown.

But the FTSE 100 in London fell 4%. HBOS shares rose 52% but Barclays fell 8% and Standard Chartered dropped 13%.

The key points of the plan are:

  • Banks will have to increase their capital by at least £25bn and can borrow from the government to do so.
  • An additional £25bn in extra capital will be available in exchange for preference shares.
  • £200bn will be available in short-term loans from the Bank of England, up from £100bn.
  • Up to £250bn in loan guarantees will be available at commercial rates to encourage banks to lend to each other.
  • To participate in the scheme banks will have to sign up to an FSA agreement on executive pay and dividends.

Special company

Much of the current crisis has been caused by the banks’ unwillingness to lend to each other, so the government hopes that if those loans can be guaranteed then lending will resume.

“This is beginning a process of un-bunging a big problem where banks won’t lend to each other for long periods,” Mr Darling said.

The lenders that have confirmed they will take part in aspects of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered.

The Treasury said that other banks and building societies would be able to apply for inclusion in the plan.

Possible profit

Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.

Taxpayers may even end up making a profit from the shares, but that is by no means guaranteed.

BBC business editor Robert Peston said there would be strings attached for banks that take the government money.

“Taking taxpayers’ money will not be a licence to trade as normal,” he said.

Negotiations will take place with each participating institution that will require them to extend normal credit lines to homeowners and small businesses, in addition to rules on executive pay and dividends to other shareholders.

‘Stop the panic’

It is hoped that the deal will get the money markets going again and assure the future of the banking system.

“They’ve got additional capital now if they want it, they’ve got an unlimited source of liquidity,” said Terry Smith, chief executive of the money brokers, Tullett Prebon.

“That certainly should stop the panic in terms of people wondering whether or not the banks are safe.”

The deal has also been welcomed by the banks.

“The government’s announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system,” HBOS said in a statement.

Barclays, Lloyds TSB and RBS also issued statement welcoming it.

HSBC also welcomed the plan but said it did not intend to use the recapitalisation scheme.

Published in: on October 8, 2008 at 10:50 am  Comments Off on £50bn ($88bn)UK Bailout Plan Announced  
Tags: , , , , , , , , , , , ,