Taxpayers bail out union bank BAWAG

Just to put you in the picture, Refco was a high powered money mover (see "Big boys and market manipulation"). It moved money out of the pockets of Austrian union members via their BAWAG bank and into some shady deals that went bad. Bad boy Refco went bankrupt. The financial backers of Refco (its creditors) decided to sue BAWAG to get their money back, even tho BAWAG's backers themselves didn't have anything to do with the shady side of the street. In Austria, anything beholden to great numbers of union members is almost automatically a political issue.

So, the Austrian government has decided to pay Refco's creditors to save the union members' bacon:

Austria, Financial Sector Unveil Bank Plan
Austria's government, major banks and insurance companies announced a plan Tuesday to bail out BAWAG, the bank that lost about 1 billion euros ($1.26 billion) in bad currency speculation deals in the Caribbean and is linked to the collapsed New York commodities brokerage Refco Inc.

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 900 million euros ($1.13 billion) of the debts owed by the Bank Fuer Arbeit und Wirtschaft, better known by its acronym 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 50 billion euros-plus ($63 billion-plus) in assets, is Austria's fourth-largest bank.

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.

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 350 million ($435 million) to Refco.

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 1 billion euros ($1.26 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.