BAWAG board to discuss Refco loan probe
by: neverl84phun (94/NYC, NY)
Long-Term Sentiment: Strong Sell 11/14/05 12:14 pm
Msg: 147677 of 147683
BAWAG board to discuss Refco loan probe
Mon Nov 14, 2005 11:54 AM ET
VIENNA (Reuters) - The supervisory board of BAWAG P.S.K., a top creditor of collapsed futures trader Refco, will revisit on Thursday why the Austrian bank approved a loan to Refco's former head last month just before his arrest.
BAWAG, owned by Austria's trade union federation, paid a 350 million euro loan to Refco's then chief executive, Phillip Bennett, on October 10, a day before he was arrested for securities fraud and shortly before Refco (RFXCQ.PK: Quote, Profile, Research) filed for insolvency.
Austrian banking watchdog FMA launched an in-depth investigation into the loan approval on Friday following an on-site probe by officials from the country's central bank. The investigation means it suspects the banking law was broken.
The central bank's report and the FMA investigation will be discussed at BAWAG's regular supervisory board meeting on Thursday, a spokesman for the trade union federation said on Monday. All but one board member are union officials.
The FMA can order bank officials to resign if the investigation confirms its suspicion that they broke the banking law. In past cases in Austria, banking officials often resigned before the FMA demanded that they be suspended.
At an emergency meeting last month, the supervisory board meeting concluded the loan was granted properly and declined to let executive heads roll until the FMA had finished its report.
Supervisory board head Guenter Weninger said at the time that BAWAG Chief Executive Johann Zwettler had argued the bank had had a long and beneficial business relationship with Bennett and Refco, in which BAWAG held a stake until last year.
Bennett had told the bank he planned to pay back the loan after one year and that he would fund it with proceeds from selling more of his 34 percent stake in Refco, BAWAG said separately.
Bennett, who had pledged the shares -- now nearly worthless -- as collateral, had said he needed the money to pay off an inter-company loan at Refco Inc., the bank said.
The spokesman declined to comment on a report in Austrian newspaper Der Standard that the net profit the bank would have made on the loan was 10 million euros, which would imply it secured a substantial risk premium for the loan.
BAWAG last week sued Bennett in Vienna for fraud, the spokesman said. It will also file lawsuits in the United States this week.
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