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Santander offers compensation to individual investors for Madoff losses

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Spain’s Santander Group has decided to offer compensation to its private banking clients who were invested in the Optimal Strategic US Equity fund, which has been affected by the fraud

Spain’s Santander Group has decided to offer compensation to its private banking clients who were invested in the Optimal Strategic US Equity fund, which has been affected by the fraud actions launched against Bernard L. Madoff Investment Securities and its resulting liquidation.

The compensation offer covers only private banking clients, not institutional investors, and applies to the principal amount invested, net of redemptions, in Optimal Strategic, which amounts to EUR1.38bn.

Santander is proposing exchange of assets under which the private investors will have the right to exchange their investments in Optimal Strategic for preferred securities to be issued by the group totalling EUR1.38bn. The preferred securities will have an annual coupon of two per cent and a Santander Group call from year ten.

The pre-tax cost for the group of this transaction will be EUR500m, which has been fully booked against the accounts for 2008.

Santander says has taken this decision in view of the confluence of exceptional circumstances in the case at hand and on the basis of exclusively business considerations, namely the group’s interest in maintaining its business relationships with its clients.

Grupo Santander insists it has acted at all times with the due diligence in the management of its clients’ investments in the Optimal Strategic fund and in accordance with all applicable laws and sound banking practices and procedures, and that the sale of these products has always been transparent and in compliance with applicable regulations and established procedures.

Santander notes that Madoff Securities was a broker dealer authorised, registered and supervised by the SEC and was also authorised as an investment adviser by the Financial Industry Regulatory Authority. As the SEC has publicly acknowledged, Madoff Securities was regularly subject to inspections in recent years, without its reputation or standing being brought into question by the market or the US regulators.

The group also says is considering the initiation of appropriate legal action.

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