The logo of the Banco de Madrid can be seen at its headquarters in Madrid March 11, 2015. The financial authority of tax haven Andorra has taken control of private bank Banca Privada D'Andorra (BPA) after the United States declared the lender as under suspicion for money laundering, the Andorran government said on Tuesday. The Bank of Spain said later on Tuesday it would take over Banco de Madrid, BPA's wholly-owned Spanish unit, in the interests of the lender's continuity following the events at BPA. REUTERS/Andrea Comas (SPAIN - Tags: BUSINESS POLITICS CIVIL UNREST)

Banco de Madrid has filed for bankruptcy less than a week after its Andorran parent was accused of money laundering by US authorities.

The Spanish private bank’s financial position deteriorated “as a result of the sizeable withdrawals of funds made by customers and of the latest developments to come to light, which have affected the bank’s ability to duly meet its obligations”, the Bank of Spain said on Monday.

Over the past week, the bank has been rocked by its connection to Banca Privada d’Andorra, which was accused last Tuesday by the US Financial Crimes Enforcement Network (FinCEN) of money laundering for Chinese, Russian and Venezuelan interests.

BPA holds all the capital of Banco de Madrid, which had assets under management of about €6bn as of March 11, according to the bank. The Madrid-based private bank caters to about 15,000 clients across 21 offices in Spain.

The accusations of money laundering went on to fell the boards of both banks. The Bank of Spain, which took over the management of Banco de Madrid last week in response to the emerging crisis, said that the application for insolvency will “help ensure fair treatment for the bank’s depositors and for the rest of its creditors”.

Deposits of up to €100,000 a customer are guaranteed under a deposit guarantee scheme, the central bank said. It added that the bank’s operations would be suspended until a pronouncement was made by a judge.

CNMV, Spain’s stock market supervisor, said on Monday that it was suspending reimbursements from investment funds managed by Banco de Madrid.

FinCEN’s initial accusations did not mention Banco de Madrid, referring only to BPA, which is one of five banks in Andorra. The mountainous principality, lodged between France and Spain, has a large banking industry relative to the size of its economy.

Fitch, the rating agency, on Friday downgraded BPA’s long-term rating to B+ from BB+, saying its reputation would be “significantly damaged”. Also on Friday, Standard & Poor’s, another rating agency, downgraded Andorra’s long-term credit rating to BBB, down from BBB+.

S&P had previously downgraded Andorra’s rating in October, after warning of risks stemming from the region’s fast-growing banking sector and its international exposure.

FinCEN said four banks provided BPA with access to the US financial system. HSBC, Bank of America and Citigroup acted as correspondent banks for BPA, while Deutsche Bank Trust Co Americas acted for Banco de Madrid. These four banks were not accused of wrongdoing.

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