Austria trade union federation head quits
by George Jahn

The Associated Press    Translate This Article
28 March 2006

VIENNA, Austria (AP) - The head of Austria's trade union federation stepped down Monday after revelations that he knew about the use of union funds to underwrite huge losses made by Bank Fuer Arbeit und Wirtschaft AG.

The resignation of Fritz Verzetnitsch came three days after the bank, which is owned by the trade federation, said it incurred losses of just under 1 billion euros ($1.2 billion) through the financing of investment companies mainly engaged in interest rate and currency transactions in the Caribbean.

While officials at the bank, which is known by its acronym BAWAG, say the bank remains financially sound, the affair has further tarnished its image just months after revelations it lent hundreds of millions of dollars to the former head of the New York commodities brokerage Refco Inc.

Vienna's public prosecutor's office announced on Monday that it was investigating Refco CEO Phillip Bennett on suspicion of fraud and related charges. Former BAWAG presidents Helmut Elsner and Johann Zwettler were also being investigated, the office said in a statement.

In 2000, the OEGB, Austria's trade union federation, posted a guarantee for the losses, enabling the bank to write them off gradually over time. Without this guarantee the bank would have been at risk of insolvency, the company said.

While Verzetnitsch did not play a direct role in the deal, he was told about it, leading to calls for his resignation from major political parties with the exception of the Social Democrats, which are OEGB allies.

Critics said the secret arrangement was morally flawed because it put money paid by union members into the fund at risk, ultimately making them responsible for bailing out the bank.

After Refco's troubles emerged, BAWAG sued the commodities brokerage and Bennett for fraud, unjust enrichment and deception in an attempt to recover 350 million euros ($410 million) in loans.

Refco filed for bankruptcy on Oct. 17, just eight days after it announced a shortfall in its books.

Bennett took responsibility for the money, taking out a loan to pay it back just before the company placed him on indefinite leave. BAWAG lent Bennett most of the cash to repay the money and is listed as the company's largest unsecured creditor.

BAWAG's supervisory board also announced the resignations, effective at the beginning of April, of four of its eight members linked to BAWAG's past financial misfortunes.

Copyright © 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. 

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