Austrian Govt, Fincl Sector Announce BAWAG Rescue Plan
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VIENNA (AP)--Austria's government, major banks and insurance companies announced a plan Tuesday to bail out BAWAG, the bank that lost about EUR1 billion in bad currency speculation deals in the Caribbean and is linked to the collapsed New York commodities brokerage Refco Inc. (RFXCQ).
Chancellor Wolfgang Schuessel said the plan - which includes the government, the central bank and major Austrian commercial banks and insurance companies - involves guaranteeing up to EUR900 million of the debts owed by the Bank Fuer Arbeit und Wirtschaft (BAW.YY), better known as BAWAG.
"We have insured the institution with a common effort," Schuessel told reporters after talks convened Monday, the national May Day holiday. Schuessel, Finance Minister Karl-Heinz Grasser and top financiers were involved in the negotiations.
Parliament agreed Tuesday to convene a special session on May 8 to approve the bailout.
The rescue plan is intended to ensure that BAWAG does not collapse as its owner, the Oesterreichischer Gewerkschaftsbund trade union federation, or OEGB, seeks a buyer. BAWAG, with 1.3 million customers and an estimated EUR50 billion-plus in assets, is Austria's fourth-largest bank.
In a bid to ease concerns about BAWAG's solvency, Schuessel and Parliament Speaker Andreas Khol stopped by one of the bank's branches Tuesday and each opened a EUR2,000 savings account. Vice Chancellor Hubert Gorbach and other government officials were also opening accounts.
The government and other top banks and insurers teamed up in an effort to thwart a run on the bank and salvage Austria's image as an international financial center.
"Internationally, we needed to send this signal to all who invest in Austria," Grasser said.
BAWAG Chief Executive Ewald Nowotny disclosed Tuesday that customers had withdrawn as much as EUR50 million worth of savings a day in recent weeks - so much that some branches had begun to run short on bank notes. Nowotny declined to say how much in total had been withdrawn.
"Now we start over," he told reporters.
The government's warranty of BAWAG's debts will run through July 1, 2007, and the nation's other top banks said they would make available up to EUR450 million in "fresh capital" for BAWAG to help it recover.
The rescue plan was announced as OEGB President Rudolf Hundstorfer negotiated over the weekend with lawyers for Refco creditors in an effort to reach a settlement. Refco creditors are suing BAWAG for alleged fraud because of its involvement in the events that led to the collapse of the New York-based brokerage.
According to the Wednesday edition of the Austrian newspaper "Kurier," BAWAG reached an out-of-court settlement with Refco creditors totaling $675 million, the Austria Press Agency reported. In addition, BAWAG agreed to withdraw its EUR400 million lawsuit against Refco, the newspaper said.
A BAWAG spokesman said he could not comment on the news report.
Refco filed for bankruptcy on Oct. 17, just eight days after it announced a shortfall in its books. BAWAG lent former Refco Chairman Phillip Bennett most of the money he borrowed to pay back EUR350 million.
BAWAG, meanwhile, is suing Bennett - accusing him of fraud, unjust enrichment and deception in an attempt to recover the cash it lent him.
Austrian government officials and financiers have been scrambling to contain the damage after it emerged in March that BAWAG lost about EUR1 billion in the failed Caribbean deals.
Under the terms of the bailout, BAWAG must provide information sought by Refco's creditors and give the government a daily update of its accounts and transactions.
OEGB announced in April that it plans to sell off BAWAG, which executives have insisted remains financially sound despite the staggering losses. "The savings deposits are safe," Nowotny said Tuesday.
Austrian National Bank Governor Klaus Liebscher also insisted that BAWAG remains solvent.
Guenther Geyer, the general director of the Wiener Staedtische insurance company - one of the companies involved in the bailout - said the intervention gave "a green light for a BAWAG of the future."
(END) Dow Jones Newswires
May 02, 2006 14:29 ET (18:29 GMT)
Copyright (c) 2006 Dow Jones & Company, Inc.- - 02 29 PM EDT 05-02-06 |
