Blue Holidays for Madoff’s Clients

12/18/2008 3:10 pm EST

Focus: GLOBAL

Nancy Zambell

Editor, Wall Street's Best Investments and Wall Street's Best Dividend Stocks

Just in case global investors didn’t have enough reasons to hit the wassail a little hard this year, clients of investor and trader Bernie Madoff will have a little—make that, a lot—less holiday cheer.

This unbelievable story is still unfolding, but Wall Street ace Madoff’s alleged multibillion-dollar ponzi scheme is sending shock waves around the planet.

The number of major global financial companies caught in this web continues to grow:

  • Spain’s Banco Santander (NYSE: STD)—the largest bank by market capitalization in the 15-member euro zone—is estimated to have €2.3 billion ($3.1 billion) in potential losses through a Geneva hedge fund.
  • Two funds in which it acts as global distributor are looking at exposure of $2.1 billion, says Austria’s Bank Medici.
  • Through its Dutch subsidiary, Benelux bank Fortis (Amsterdam: FOR.AS) announced it has indirect exposure of somewhere between €850 million ($1.17 billion) and €1 billion ($1.38 billion).
  • Funds in jeopardy at Banco Bilbao Vizcaya Argentaria (NYSE: BBV) may reach €300 million ($405 million).
  • Losses at France’s BNP Paribas (Paris: BNPP.PA) could surpass €350 million ($473 million).
  • Write downs at Britain’s HSBC (NYSE: HCS)—the largest bank overall in Europe—could reach $1 billion

And the list goes on, possibly totaling more than $11 billion in Europe, alone.

The Madoff scandal adds even more uncertainty to already wobbly global economies and markets. And it’s an  extreme example of the greedy schemes that usually accompany bull markets, which collapse when the bear raises his head.

Meanwhile, the Federal Reserve and other central banks are still trying to grease the wheels of an economic recovery. The Federal Open Market Committee’s unprecedented move to slash the federal funds rate all the way down to 0-0.25%, sent the Dow Jones Industrial Average soaring by 359 points earlier this week.

The UK reported that it is also considering a zero interest-rate policy. Analysts are looking for a big reduction from Bank of Japan Friday, which moved stocks on the Nikkei up 0.6% Thursday.

Solemn economic news continues to pour in, including huge jumps in Britain’s unemployment rate—to a 17-year high; deterioration in Germany’s business climate index, to 82.6—the lowest since its 1990 reunification, and a falling trade surplus in the euro zone, reflecting deepening weakness in global demand.

Giant Indian software company Infosys Technologies (NASDAQ: INFY) was a bearer of bad news when it predicted that the Indian information technology (IT) industry would not recover from slow growth any time soon.

Even China reported that November’s industrial output increased 5.4%, falling from the 8.2% rise in October, the slowest annual growth since February 2002. In response, the government announced plans to fight the economic downturn by loosening its money supply by 17% next year.

So far, the mega-financial bailouts don’t seem to be having much impact on the economy. And while the US is still fiddling with the possibilities of an auto bailout, even Jaguar, now owned by Indian company TATA Motors (NYSE: TTM), is looking for a rescue. Instead of the bread lines of the Great Depression, we may soon see lines in front of government buildings as executives from industry after industry line up for their bailout money.

Yet the recent stabilization of world markets has prompted some advisers to recommend stocks and other investments again. Chris Gilchrist, editorial director of Everyinvestor, tells us in our Q&A this week that investors can ready their portfolios for a rebound by adequately diversifying and protecting them.

Eoin Treacy, global strategist at Fullermoney.com, shared his latest forecast for the best performing markets in the near-future. And emerging markets received some attention from both Carlton Delfeld, editor of Chartwell Global ETF Advisor, and Yiannis Mostrous, editor of the Silk Road Investor.

Don’t forget that while you are making your New Year’s resolutions to lose weight or exercise more or be nicer to your in-laws, this is a perfect time to think about your financial goals and how you plan to achieve them in the year ahead. I wish you great fortune in both, and hope to help you on that road in 2009!

Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.

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