Santander Clients in Madrid Weigh Bank’s Madoff Offer

Santander Clients in Madrid Weigh Bank’s Madoff Offer

By Charles Penty

Feb. 2 (Bloomberg) -- Banco Santander SA clients facing losses from investments with Bernard Madoff filed into the bank’s Madrid offices today to discuss its offer of compensation. Not all of them were accepting the deal.

“I’m not signing,” said Jose Luis Del Barrio, a 62-year- old architect and “lifelong” Santander client. “There’s been nothing but falsehood and negligence,” he said as he huddled out of a downpour in the doorway of Santander’s private banking office in Madrid’s Paseo de la Castellana.

Santander began calling Spanish customers last week to arrange personal appointments to accept its offer of preference shares paying 2 percent a year. Spain’s largest bank is attempting to settle Madoff-related losses of 1.38 billion euros ($1.7 billion) at its global private banking network.

Santander, based in the Spanish town of the same name, announced the proposed compensation last week to protect relationships with customers, the first offer of its kind by a bank hit by the alleged fraud. Madoff, 70, was arrested on Dec. 11 and charged with using billions of dollars from new investors to pay off older ones in a Ponzi scheme.

Santander isn’t letting customers see the contract before their meetings and in some cases is giving them until Feb. 5 to agree to its terms, said Fernando Zunzunegui and other lawyers advising Spanish clients on Madoff-related matters.

‘Grateful’ for Opportunity

A spokesman for Santander declined to comment in a phone interview. The bank says there’s no deadline in the contract by which clients must accept its terms.

“I am grateful for this opportunity to sort the problem out as it may be the best solution under the circumstances,” said Jose Maria Zazo, a hunting goods salesman with 400,000 euros invested at the bank. He said he signed the contract this morning. “I’m still amazed that a bank of Santander’s size and prestige got itself into this.”

Santander was sued in U.S. federal court in Miami by investors who accused the bank of failing to adequately vet Madoff. Lawyers including Zunzunegui allege the bank had sold products linked to Madoff to Spanish branch network customers, who in some cases invested half or more of their money.

Plaintiffs Marcelino Testa, an Argentine resident, and Inversiones Mar Octava Limitada, a Chilean company, filed in a Florida court on Jan. 30 to ban Santander from communicating with them or other investors who might join a class action against the bank, court documents show.

Sushi Bar Meetings

Clients from the bank’s Latin American private banking network have also been called in to sign the document, say lawyers including Guillermo Tixi, a partner at Tixi, Ricciardi & Romero Abogados in Buenos Aires. One of his clients said in an interview last week that he’d met a Santander representative at Museo Renault, a Buenos Aires restaurant and sushi bar, and had refused to sign the contract.

Santander, which said Dec. 14 it had 2.33 billion euros in client funds with Madoff, so far hasn’t offered any settlement to institutional investors.

The yield on the preferred shares Santander is offering compares with market rates of as much as 9 percent. The contract also included a commitment by clients to forgo legal action against Santander and keep it as their “preferred” bank as long as the shares stay in circulation, which could be forever, according to a copy of the contract seen by Bloomberg News.

“I signed,” said Luis Rodriguez Pedrazuela, 88, a retired lawyer who said he’d had 600,000 euros invested with what he understood to be a “deposit” that turned out to be linked to Madoff. “It would have been better to have the money, but this is a resolution.”

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

Last Updated: February 2, 2009 11:51 EST