Wednesday, December 24, 2008

Santander also caught in the due diligence lie

The numbers are larger than at Bramdean – the lie is the same:

Intensive due diligence is vital to ensuring the integrity and sustainability of the investment process . . . Each investment undergoes lengthy and detailed scrutiny according to clearly defined manager selection criteria.

As the FT points out it was impossible to do due diligence on your Madoff investments because Bernie did not allow it. But Santander claimed they did it as did certain other fund-of-fund businesses.

There is however much bigger consequences to Santander being caught in a lie. Santander – as do almost all English speaking banks – needs to raise money in wholesale markets.

Raising money depends on trust and as Jim Grant has just pointed out (and as this blog has pointed out several times) there is currently a “bear market in trust”.

If the trust in Santander fails then Santander fails. And that would be a very big piece of Bernie Madoff collateral damage.



Anonymous said...

You may find this tool fun.*/

the way back machine tries to keep things from going down the memory hole.

Charles Butler said...

Banco Santander has managed to alienate just about everybody in the last couple of months.

1). Retail customers, by surreptitiously selling them Lehman paper when they had been looking to buy term deposits;

2). Shareholders, with the 25% dilution;

3). Family and friends, the domestic oligarchy whose money they placed with Madoff. Botín father, son and daughter implicated in this last through two banks and one investment manager.

I used to be a fan.

Happy holidays.

Anonymous said...

There was another FT article where it looks like a 65 year old money manager, who apparently placed 1,400 million dollars with Madoff, committed suicide.

Involuntary manslaughter charges seem not entirely inappropriate.

John Hempton said...

Charles- I had noticed Santander's behaviour.

The hedgie who topped himself ran a 100% Madoff feeder.

To run one of those required either willful ignorance or some other kind of self deception - or you needed to be totally corrupt. I suspect that willful self-deception is the main game.

Willful self deception can be rough when it comes crashing down.


Anonymous said...

Charles, you forgot to mention other Spanish banks --- didn't Santander piss off the competition with it's relatively large rights issue? As Bear found out, it can be bad not to have allies if things turn sour...

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.